5 Common errors and omissions to avoid while incorporating a company
By Jeevitha Chandra
Incorporation of a Company
The incorporation of a company refers to the legal process that is used to form a corporate entity or a company. In other words, incorporation means the registration of the Company in Registrar of Company (Known as ROC), now maintained by Ministry of Corporate Affairs (MCA) through a e-Portal. An incorporated company is a separate legal entity on its own, recognized by the law. It becomes a corporate legal entity separate from its owners.
Incorporation effectively creates a protective bubble of limited liability, often called a corporate veil, around a company's shareholders and directors. As such, incorporated businesses can take the risks that make growth possible without exposing the shareholders and directors to personal financial liability outside of their original investments in the company.
5 Common errors and omissions to avoid while incorporating a Company:
1.Failing to Keep Records of pre-incorporation Expenses
You will incur pre-incorporation expenses like,
- Legal cost (Govt. & Court related fees)
- Professional fees (Lawyers, Chartered Accountants, etc.)
- Stamp duty
- Printing fees
- Market Survey Expenses
even before completing company registration or before beginning operations from your own pocket. It is very important to keep records of all these expenses because you will need them when it is time to reduce tax liability at the year end. You must take these expenses into account or you could end up paying higher taxes when your company begins making profits.
2. Misplacing Share Certificates
Share certificates are the title documents to indicate ownership of the company, it has the same significance of holding a original property sale deed which entitles ownership of land and building. Many entrepreneurs misplace or don't even maintain a copy of share certificates this can create serious issue at the time of funding rounds or sale or acquisition of company. So please obtain share certificates from your consultant and store it in a bank locker.
3.Ignorance About Applicable Tax & Other Government Registration
Your company registration process doesn't stop with obtaining incorporation certificate from MCA. You need to be mindful of obtaining other paper work or registration before you can start your business operations.
Some of the initial compliances and registration usually ignored are
4. Wrong/ Insufficient supporting data in company registration form
While filing an application, many supporting documents are submitted and the data mentioned in the documents must be accurate. Invalid and incorrect data leave room for rejection of the company registration application. Some of the common errors in document submissions are
- Not providing 4 unique company names
- Director address proof is not supported by proper utility bills
- Tampering with director signatures on the documents to be submitted
- Not obtaining NOC from landlord or office space provider
- Misplacing Digital signature certificates
- Not attesting the documents by a professional like CA/ CS/ CMA etc
- Not notarising or non apostillization documents of foreign share holder and director
5. Appointment of Indian Resident Director
With lot of multinational companies setting foot into India, incorporation of company has become popular way to have control over the operations of Indian Business and develop and intellectual property. However unlike other developed countries Indian Companies Act mandates every company to have atleast one resident director (Resident director here means person who stays in India for atleast 180 days in previous year, refer income tax act for details).
Penalty for not appointing an Indian resident director can start from INR 50,000 and run up to 500,000
Appointing a well experienced reputed professional firm can help you avoid from committing such costly errors and save unnecessary cash out flow at a later point of time.
Few Other Points to be taken care of:
- File the address of registered office post incorporation within 30 days
- There should be Maximum of 3 directors and shareholders at the time of incorporation
- Get Bank statement for individuals as Utility Bill
- For registered office, download the E-bill for having full address
- Take GST registration only post incorporation as its optional at the time of incorporation which will make the process of incorporation smooth
“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of situation.”