Is company registration necessary for startups ?

While the point at which a company should be registered stands as a big question, there’s one other query that precedes that question. Is registration necessary?

 

While the answer is a straightforward and simple YES, why the act of registration is deemed necessary requires an explanation. However, one doesn’t need to register the company right away after starting up. There are many reasons why registration is a necessity. They can be summarized into seven points, in total:

1. As long as you’re intending to operate as a freelancer or an independent worker, registration isn’t necessary if you abide by the taxation laws. But in order to function as a company, the entity must be legally registered. Without a registration, raising invoices as a business would be illegal.
2. Money transactions area is a big part of any business. If we are running online or offline business whatever, we need a bank account for the transactions but with the saving bank account we cannot deal with the more transduction.
3. We have to need payment gateway service for our website so that’s why we need a legal certification to open a payment gateway for our website.
4. We have to protect our brand name IPR of the business
5. Partnerships and deals are based on mutual trusts. And hence it is highly likely for a dispute or clash in interests to rise at any point. In such situations, we have to file the case against any other person due to some business issues.
6. We need funding for our business from venture capital or Angel investor or family or friends.
7. We have to protect our business privacy and clear the all legal things between the Business Partners about the Profit sharing ratio etc.

 

Advantages of registration.

While Registration is a necessity, there are many advantages to registering a company.

Limited Liability: As a director of a business in a company structure, you are not personally liable (legally responsible) for the actions of the business – the company is. The company assumes and is liable for any risks and your personal risk is limited – meaning your personal assets (such as your home) can be protected.

Tax advantages – In many countries, businesses are given tax concessions as a way to encourage people to build businesses & stimulate the economy. This means that once you are earning over a certain amount, it is better for you to run the business in a company structure as the tax man will take less of your dollars.

Credibility – Using a company structure can give you credibility which is important in some situations. Clients are highly unlikely to sign a large contract with you as a sole trader. They want to deal with companies. However, if your business is selling stuff at markets, then having a company is probably not important as far as credibility is concerned.

 

When to register?

The answer to this is, “It depends.”

Before you even think about company structures, you need to establish that you have a viable business opportunity. Then, (and only then) decide when (or if) to move the business into a company structure, by weighing the advantages and the disadvantages. Quite simply, it depends upon the volume of work.

1) Firstly if you have a low level business initially then just get a PAN card for yourself and start your business as Sole Proprietor. There is no big legal formalities for creating Sole Proprietorship firm. Just have a bank account and this is sufficient.

2) If you are giving any services and the volume (turnover or receipt) of your service going to exceeds Rs 10,00,000/- then you have to register for service tax. But if you are falling under the negative list than it is not required to pay service tax.
3) If you are selling any product and its coming under VAT/Sales law then you have register under that law. Every state have different VAT laws.

4) If you have a unique idea then you can also make register for patent or copyrights.

Choosing the type of registration

The type of registration you opt for your company is an important factor to consider- whether to choose Sole proprietorship or LLP or Private Limited.

Quite simply, it depends on the type of business you’re running. If you’re a freelancer, and works alone, then you can opt for a sole proprietorship.

For a small scale business, with two or more partners, LLP would be a good choice, but if you’re intending to grow further into large scale, registering as Private limited is better.