Legal Formalities and Procedures on How to Register a Company or a Startup in India?

In this chapter, I will let you know you what are the legal process required to register a company in India. Here we will understand the legal formalities and procedure required to be followed if you are willing to start a business in India or you have already drafted your startup business idea and willing to register a startup company.

First of all you are supposed to decide what kind of business you would like to start. Whether you want to start a private limited company, a partnership firm, an LLP or you want to go with a simple proprietorship. If you are looking to start a private limited company, the procedure is very straightforward. The procedure starts with a name approval for the business and ends with your certificate of incorporation being issued.

You are advised to look at your local registrar of companies’ website, whichever state you are residing in and to find out the particulars of what you are supposed to file and how much you need to pay. Usually, you should be able to expense INR 120,000 in order to incorporate a company of your own. You can hire an agent (a CS or CA firm) to do this for you, and it will make the things easier. At times, the advocates are a bit expensive for registration of your company; hence, it’s not advised here.

LLP’s or limited liability partnerships are an affordable option to incorporate and help you with a great extent of flexibility for a company. They are less fragile to operate. But if you’re seeking some kind of investment by organized investors, they are not the weapons of choice.

For the documentation of your company, you will have to go through the privacy policy, contracts and other legal formalities. You have two choices here. First one is little expensive but it will make it happen in an easier way. You can engage an advocate who will help you simplify the things. Second choice is little complicated but it can save your money. You can try to find out the free templates and personalize them as per your requirements. I will recommend the latter one, if you have a little knowledge of the same, you can save your money. You can hire the agents for service tax and vat and other registrations who are ready to do this for a nominal fee. Or you can refer to your local commercial taxes department website and with the directions of service tax website; you can do it by yourself. The former is far less complicated and can save your precious time.

Legal Formalities – How to Register a Company or a Startup:

Now I am explaining each and every term and step individually required to register a company or a startup so that you can come up with a better decision for your organization. Any business or company is registered: (1) As a Firm or (2) As a LLP or (3) As a Company. Let us look into it in detail.

1. Business Registered, As a Firm:

You can get your organization registered as a firm. “The firm Registration are of two types: Proprietory Firm or Partnership firm”. Lets understand the registration process of this firms.

1.1. Registration of Sole Proprietorship Firm:

To start any business in India, the sole proprietorship is a very simple and much preferred process. If you are the single owner of your organization, then you should just go to a nearby bank and get a current bank account opened for your organization. The main Objective in the proprietorship is Current Bank Account. Some of the documents are compulsory to open a current bank account that are mentioned below:

VAT Registration: If you are dealing in manufacturing or trading the products and want to sell your products on e-commerce websites such as Flipkart or Snapdeal, you are needed to have the VAT registration.

Most probably, it becomes mandatory to go for the VAT Registration, if your turnover exceed 5 Lakhs INR. It’s a state tax registration and it may vary State to State. Usually, it costs around 5,000 INR to 10,000 INR and in few states it includes a security also like FD.

Or

Service Tax Registration: You are supposed to go through the service tax registration, if you are a service provider in your area or throughout the nation. As per the rules, you have to go through the service tax registration, if your annual turnover exceeds 9 Lakhs INR. It may cost you around 2,000 INR to 5,000 INR.

Or

Shop Establishment Licenses: If you own a shop or office, then you are supposed to go for the shop establishment licenses. As compared to VAT or Service Tax, it’s much cheaper.

Or

Certificate from Chartered Accountant (Regarding Nature of Business): There are few banks that may demand a certificate regarding the nature of your business and the same can be get from a chartered accountant in your nearby.

Summary of Proprietorship Firm: You are just supposed to visit a bank in your nearby and ask the bank policy to open your current account.

1.2. Registration of Partnership Firm:

This is an old form of partnership and is applicable if there are multiple partners in your company. You are just supposed to go to any nearby notary and buy a Stamp Paper of 500 Rupees. You have to fill the legal terms and conditions of partnership and you done. You may also meet the nearby Registrar with the partnership deed, pay his fee and register your organization. Next, you can apply for PAN & Open Current Account. It may cost near 3,000 to 4,000 INR.

Summary of Partnership Firm: Partnership Registration is best if you have partners and your budget is just less than 5,000 INR for registration.

2. Business Registered, As a LLP:

LLP or limited liability partnership is the new concept in country and you can register a company under LLP registration. Basically, it’s a mixture of Company and Partnership, and hence it has the features of both Company and Partnership. It’s a good choice for Startups. As compare to private limited company, it has many advantages. The main advantage is capital requirements is very less and lesser compliances at the end of year. In a LLP, you just need 2 statements filed to ROC, but in a private limited company, much compliance is needed to be filed to MCA (Ministry Of Corporate Affairs). It may cost near 9,000 to 10,000 INR.

Summary of LLP Registration: It’s the best choice for the entrepreneurs who have multiple partners and want to register a company and start their business.

3. Business Registered, As a Company:

If you want to register a company then, “a company can be registered in two types. Private Limited Company or One Person Company (OPC)”.

3.1. Private Limited Company:

This is an old type of proprietorship in India and it requires min 2 directors. Also it may require a share capital 1 lakh INR and more compliance. It’s a good choice for the entrepreneurs who want to raise the funds as well as sell out their share in the company. It may cost about 14k to 16k INR and more in few states such as Kerala or Punjab.

Summary of Private Company Registration: it’s a good choice for those who want to raise funds as well as expand their business on the global level.

3.2. One Person Company (OPC):

This is mostly same as above but it needs minimum 1 director and share capital is the same as above.

Summary of One Person Company (OPC) Registration: If your budget is up to 5,000 INR, I will suggest you to register under proprietorship or Partnership firms and when your business starts growing, you can convert it into LLP or Company.

But if your budget is between 5k and 10k INR, I will suggest you to register a company under LLP registration and if you feel the need to choose Pvt. Ltd later, you can go for it anytime.

And if your budget is above than 16k and you want to do serious business, I will suggest you to choose company as Pvt. Ltd or OPC (Open Person Company) and hire a good chartered accountant who can take good care of the legal compliance of your company.