Blog Article

A day comes when every entrepreneur dreams of starting their own business, but there are several complexities and legal issues that one needs to tackle while starting a company. The system in India is thankfully favourable for starting a business along with facilitation of funds and resources to the business.

Many entrepreneurs start their business without seeking legal advice, which can be detrimental to the company’s objectives. Most founders rarely have legal expertise and thus, it makes sense for a business to get legal counsel or advice before making strategic decisions. With the help of legal advisors, the company can prevent and avoid legal implications or making a false move, instead of just fixing a problem after it arises.

INC 29 Form

It is the form required for registration of a company by the Ministry of Corporate Affairs. It combines several components into a single form, unlike before where one had to get a separate form for each category.

The INC 29 form includes name reservation, Permanent Account Number (PAN), Tax Deduction Account Number (TAN), Director Identification Number (DIN) and Employee State Insurance Corporation (ESIC).

• DIN No. takes a day and costs INR 500
• Digital Certificate Signature takes 3 days and INR 1500

Let’s take a look at the few things one needs to do before starting a company:

1. Company Name

The company name has to be unique and different from a company name that already exists,not just a random arrangement of letters. The name can be reserved online with the registrar of companies. It takes around a couple of days and INR 500 to obtain certification. The Registrar will check the legitimacy of the name submitted and intimate the business if they can use the name proposed or will have to change the name of the company. Additionally, One must  choose what type of entity they wish to set up whether it’s a partnership, sole proprietorship, private or public limited company, limited liability partnership, joint venture and so on.

2. Stamping Documents

The company documents, such as Articles of Association (AOA), Memorandum of Association (MOA), etc. need to be stamped by a private sector bank or by the State Treasury. The AOA and MOA are important documents that a company needs to tailor make to their specific needs based on company goals and objectives. These documents state the main and ancillary purpose of carrying out business, the way in which business will be carried out, share capital, directors of the company, etc. and need to be submitted at the time of registration. These will serve as a blueprint for the company as well as the Registrar on how the company will function.

Stamp Duty is INR 500 and the fees for AOA and MOA is INR 1,300 upwards (based on the share capital stated in the documents). The fees can be paid online while filing INC 29 itself.

3. Certificate Of Incorporation

The certificate of Incorporation is given by the Registrar of Companies upon submitting signed and scanned copies of the MOA, AOA and consent of the initial directors.

The base registration fee is INR 4000 and depending on the stated share capital, this amount can upto INR 14000 on average. The payment can be made online at the mca website or at an authorised bank. It takes about a few days to obtain the certificate of incorporation by email after filing for INC 29, a post which a business can start its operations and exist as an entity.

4. Company Seal

After recent amendments to the Companies Act, a company seal is no longer a compulsion but an option. A company seal serves as a company signature instead of several individual signatures of directors. Nonetheless, a company seal can be used to issue certain documents such as share certificates as well as two directors signatures. The cost of getting a seal, should you decide to get one, can cost between INR 300-500.

5. Permanent Account Number (PAN)

A PAN is a ten-digit alphanumeric code that a person uses to pay taxes in India. Form 49A is required to be submitted along with the certificate of registration issued by the Registrar of Companies, the company’s registered address and personal identification in order to obtain a PAN card. A PAN is required to make payment of taxes. It costs under INR 100 and takes about 7 days to process and be issued. Documents need to be physically dropped off to the agent, and thus, the entire process cannot be just online.

6. Tax Account Number (TAN)

A TAN is a ten-digit alphanumeric code required for deducting tax or collecting tax at source. All tax deducted at source (TDS) and tax collected at source (TCS) certificates need TAN to be quoted when filing for these documents. It costs under INR 100 and takes 7 days to be issued from the date of filing. Failure to file for a TAN will result in a penalty of INR 10,000. The fee must be paid by credit card and the documents need to be handed physically with the National Securities Depository Services Limited (NSDL).

7. Office Registration

The registered office needs to be filed within 30 days of commencement of business operations by submitting form A to the local shop Inspector along with INR 6,500 as registration fee. The fee varies based on the number of employees working in the establishment.

8. Registration For Value Added Tax (VAT) And Commercial Tax (State Tax)

Currently, a single uniform tax termed as the ‘Goods And Service Tax’, has been proposed and introduced to replace value added tax and state tax by 2017. Registration of tax certificates before that will require an individual to file for form 101 along with original documents of the company such as MOA, AOA, PAN card, proof of place of business and a passport size photograph of the applicant. It costs INR 5000 and takes between 10-15 days to get VAT registration certificate.

9. Professional Tax And Employee Provident Fund Organisation (EPFO)

Profession Tax registration needs to be filed at the Professional Tax Office in order for companies to collect and pay professional tax from employment of individuals in professional fields. It takes 2 days and requires no cost.

All establishments with 20 or more individuals need to register with the Employee Provident Fund Organisation. This also requires no cost to obtain, but it takes 10-15 days to obtain the certificate.

At present, there is no online way of filing these documents. 

Any individual drawing less than INR 21,000 per month will be granted Employee State Insurance (ESI) benefits.

10. Company Policy

A company must establish its set of policies that the company must adhere to. These policies are laid out in the MOA and AOA. Apart from company policies, a company must draft several specific policies tailored to a specific use. Privacy policies of companies require its users to agree to the terms and conditions before use of its service. This informs the user that he in entering into a contract with the company and the way in which the company will use the information provided by the user.  Other policies include HR policy that determines the hiring and firing policy of the company. Companies are also required to have a policy on sexual harassment at the office of employment or otherwise. We undertake drafting of privacy policies at LegalDesk.com.

The following aren’t necessary, but worth a mention as you look to start your business.

Co-founders Agreement

This agreement should include the equity structure, demarcation of roles and responsibilities, non-compete clause, further financing, employment and benefits, etc. An agreement or document with these contents serves as a remedy in case of dispute or legal proceedings among founders. Can you guess who does co-founders agreements? That’s right! Here at LegalDesk.com you can get your co-founders agreement. It is not a compulsion to have one, but it does serve as an official document of undertaking between its signatories as well as investors use it for reference to identify the structure of the partners, roles and responsibilities.

Employee And Company Contracts

Employee contracts are non-binding and are used so that an employer is compensated for time and resources spent on training an employee in case the employee decides on leaving the company. These are not compulsory either, but generally, companies require employees to sign employment contracts that include a non-compete clause, non-disclosure clause, terms of employment, etc.

Funding

Since nowadays everyone is opting for the funding route, it is important to make a mention of it, though several successful companies bootstrap and start their business. A company must have all the legal documents necessary to obtain funding from an investor as every investor ought to do their due-diligence. The company needs to set up a company bank account to receive and utilise the invested funds. Again, to open the said bank account, the business needs to show proper documents required to open a business current account.

To Conclude

From a legal perspective, there are several prerequisites that a founder has to look into before his company is officially set up and business operations can commence. Several other factors that have not been included in this list because they may not have legal implications such as – business decisions, vendor arrangements, website, etc. but are still necessary for a business to consider before it is established.

Viola! We are done. Now that you know what is essential before setting up a business, you can step out there and start your own company.