10 misconceptions and myths that you have about company registration

Company registration is the first step to set up any business as it provides numerous incentives. Even though registered businesses benefit significantly from unregistered ones, most businesses operate as partnerships or sole proprietorships in India.

It becomes pertinent to conduct online registration of a private limited company in India.

With start-ups emerging out in the market from across the country, it is evident now more than ever to highlight the significance of undertaking online registration of private limited companies in India.

A breed of domestic entrepreneurs is reluctant to adopt the corporate structure because of several misconceptions and myths revolving around the company registration process. In this blog, we would try to debunk those claims on the company formation process.

We have curated some of the biggest ones as we wish to show a clear picture of what is genuinely allowed under the law. As it is crucial to understand how the law affects your business to avoid making any pricey mistakes.

The commercial location is crucial for company registration.

One can legally register their company in the residential location. Many entrepreneurs are oblivious that they can legally set up private limited businesses in any residential space.

As per the provisions of the companies act, 2013, there are no limitations under corporate law that restrict the registration of new businesses in residential areas. Nonetheless, the company must affix its name and registered office address at every site where it operated its business.

Original documents are required to be filed by the applicants.

Scanned copies that the applicants have accurately attested will be accepted. Many scammers take advantage of it from entrepreneurs by forcing them to file all of their original paperwork during the process of company registration.

It is an attempt to cheat and defraud entrepreneurs who are oblivious of the correct process. It is not compulsory to file original documents in the company incorporation process.

GST registration is compulsory.

It is a big misconception that GST registration is compulsory, which is not valid. Only those persons who offer taxable services are mandatorily obliged to apply for GST registration. GST registration is not needed if the annual turnover is less than the threshold prescribed by the government; this gives the small-scale service providers the option of availing of GST exemption.

The minimum level of annual turnover is needed for company incorporation.

One does not require any minimum level of turnover or sales to register the company. The new business with even no sales that are barely earning any revenue can also register itself.

Allotting the shares to directors is compulsory for company incorporation.

It is a myth that every company’s director should hold shares. The shareholders who have invested their money into the company require not to be directors. Likewise, the company’s directors are not obliged to have any shares in the company.

The rate of taxation applicable to private companies is a drawback.

The tax rate applicable to private companies can often be higher in juxtaposition to individual traders or partnership firms. Nonetheless, the tax on corporate entities is calculated after the deduction of expenses from revenues.

This drawback is not available to partnership and sole proprietorship. Also, more significant allowances for tax deductions have been made feasible for registered companies.

Humans can only make investments in the company.

It is totally fabricated that only humans can be the owners or shareholders of the company. As per the law, the company is an artificial person, and thus even an incorporated company can invest in the shares of another corporation.

The company’s share capital should be deposited in the bank at the time of incorporation.

There is boundless scope for flexibility in the private limited venture. The company’s share capital doesn’t need to be deposited in the bank at the time of incorporation. Likewise, once your business is incorporated, all the modifications concerning business, capital, official address, and many more are possible from that day onwards.

Company maintenance is expensive.

It is a wholly cooked-up myth that company maintenance is expensive. There is only a nominal amount of expenses for matters like compliance, accounting, and income tax return filling.

Company registration requires to be renewed every year.

It is not compulsory to renew the registration of your company every year. One-time company registration would suffice. Also, your company would be registered with the MCA till the end of time unless you take the legal winding-up process at hand.

In conclusion.

You should not be misled by such misconceptions and myths as mentioned above; conduct your own research before doing anything.


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