Myths & Misconception About Company Incorporation
India is one of the fastest-growing economies but India is also a country having the second-highest number of unregistered businesses in the world.
With startups budding in every nook and cranny of the country, it is necessary to highlight the importance of undertaking company registration. It has been observed that there is a tendency among entrepreneurs to avoid the registration of their businesses. Registration or incorporation as a corporate entity is a smart and rewarding choice for entrepreneurs for a number of reasons.
Starting with the opening move of shortlisting your business idea, brainstorming and in-depth research of the market trends, developing the product or service, looking out for finances, charting the business plan, the final step towards achieving your entrepreneurial dream is company incorporation.
Company registration is the final but principal step for the establishment of any business and has multiple incentives to offer. Given the fact, still, the majority of businesses in India operate as Sole Proprietorships or Partnerships.
The basic problem is that Indian entrepreneurs are reluctant to embrace the corporate structure owing to myths and misconceptions surrounding the company registration process. They tend to get away with the legal formalities involved in the process.
The reality is quite the opposite! Registering a company and full-filling compliances with the help of a professional is a lot easier than what is assumed.
In this article, we will burst certain myths and assumptions regarding the company registration process and unveil the true picture to help you make an informed choice.
Some of them are
Myth - A commercial space is necessary for Company Incorporation
Truth - One can legally register his/her company in a residential location or can even get it registered at a rented address and the registered address can be easily altered even after the company incorporation. As per the provisions of the Companies Act 2013, there are no restrictions that prevent the registration of new businesses on residential premises.
However, it is compulsory for the company to affix its name and have the registered address of their office at every location where they operate and conduct their business.
Myth - GST Registration is mandatory
Truth - There is no such thing and registration is mandatory only for those who wish to provide taxable services. In the GST regime, businesses whose turnover exceeds the threshold limit are required to obtain GST registration.
Myth – Mandatory for directors to hold shares in the company
Truth – There is no compulsion that every director in the company must hold shares and the shareholders who have invested their money into a company need not be a director.
Myth - Higher Tax-rates
Truth - The rate of tax might be higher for companies than sole proprietorships or partnership firms but this is not a drawback as the tax on corporate entities is calculated after deductions and exemptions. Registered Companies are also entitled to certain other benefits which are not available for sole proprietors or partnership firms.
Myth - Investment can be made only by a natural person in the company
Truth- No, investment in a company can be made by any “artificial person” as per the law. Hence, a company or a corporate can also become the owner or shareholder of another company.
Myth - Incorporation of a company is a time-consuming process
Truth - With registration services being provided online, one can get their business registered quickly and in a simple and hassle-free manner, provided one has all the documents in place. Usually, it takes 15-20 days for a company to get registered.
Myth - Maintenance, and incorporation of a company is expensive
Truth - Gone are the days when incorporating a company was an expensive affair. In today’s digitalized era, the registration of a private limited company can be done at many affordable rates. When it comes to maintaining the company, one needs to spend only a minimal amount for matters like accounting, compliances, and ITR filing which can be done easily with professional assistance.
Myth - Renewal of registration annually
Truth - One-time registration for a company is enough. Once the company gets registered with MCA, it’s for a lifetime until and unless the company undergoes the legal process of winding up.
Myth - Other Structures i.e., Proprietorship and Partnerships do not require audits
Truth - The audit requirement for any business is decided on the basis of annual turnover. If the turnover exceeds the threshold limits, then it is mandatory to get your accounts audited by a Chartered Accountant. A private limited company on the other hand is required to have its financial statements audited each financial year, irrespective of sales turnover or profitability.
One should not be misled and trapped by these myths and misconceptions instead research and take professional help from reliable and authentic sources as these things would definitely matter in the health of the business one is operating. We hope these points are well clarified and would help you and your business in future.