Guide on how to go about on starting a startup
First and foremost thing to be decided before starting a startup is the form in which the business is going to function. There are several forms through which business can be done – the famous one being the Company form of business apart from Sole Proprietorship, Partnership and Limited Liability Partnership (LLP).
If a medium to large-sized business is envisaged, it would be best to incorporate a Private Limited Company. On the other hand, if the business envisioned is micro or small, it would be wise to start a Limited Liability Partnership (LLP) or Proprietorship. If the entrepreneur decides to start a LLP or Private Limited Company, two persons would be required to act as Partners or Directors. Document like PAN Card and address proof of the promoters would also be required during incorporation of LLP or Private Limited Company.
The Pros and Cons of various forms of business must be weighed before arriving at a conclusion. Once the decision is made, we can proceed with forming the entity. We’ll discuss the aspects related to the formation of a Company in this Article.
This is the most successful form through which businesses worldwide are done due to its unique and business friendly characteristic features. This is more suitable for businesses that have high growth trajectory, heavy operations and to those that require huge capital to be raised from the public at large.
With its advantages, it also carries a few disadvantages such as Stringent Compliance Norms and the prospect of getting tangled with legal paperwork.
A company can be formed either as a Private Company or as a Public Company apart from the possibility of forming a One Person Company.
Differences Private Co. Public Co.
Minimum No. of Members Two Seven
Maximum No. of Members Fifty Unlimited
Minimum No. of Directors Two Three
Invitation to Public to buy its shares Cannot Invite Public Can invite Public
Transfer of shares Certain Restrictions Transferable Freely
On the Eve of World Labor Day on May 1st, the Ministry of Corporate Affairs brought in a major reform wherein the incorporation of a new company will now require only one form alone as against the earlier requirement of eight.
This new form is known as INC-29 and it replaces all the earlier tedious processes of filling several forms for incorporation.
Henceforth, the procedure for name availability, Director Identification Number, company in-corporation and other business related information can be submitted using INC-29.
The detailed discussion of 8 forms which were required earlier to incorporate a company is ignored here as they are no longer relevant. INC-29 would alone suffice.
The registration of a company involves these major steps:
(With Regard to INC-29)
The INC-29 is an eight-page from requiring several pieces of information and documents, some of which require a Company Secretary’s signature, to be submitted all at once. It is to be noted that re-submission is allowed only once.
- Obtaining Digital Signature Certificate (DSC) from an MCA-authorized agency to use the electronic filing system of the MCA 21.
- Obtaining Director Identification Number(DIN)
- Only one option as a name for name approval is to be given. The following rules have to be followed:
- The proposed name of the company should not have been already taken on mca.gov.in.
- There should not be a registered trademark in the same name which can be confirmed by checking at ipindia.nic.com.
- The first half of the name is should preferably be unique. Avoid geographical references, adjectives, abbreviations and generic terms. Also, the words bank, exchange and stock exchange require approval from RBI and SEBI.
- The second half could describe the sector one is in. The significance of the name is to be entered in the form too.
- The Memorandum of Association and Articles of Association will contain the main purpose of the business and internal procedures of the company respectively. Additionally, one needs to attach an affidavit from all subscribers of the memorandum through Form INC-9 (available on mca.gov.in).
- Every company must have a Registered office the address of which is to be filed in the form INC-29.
- The payment of the fee depends on the authorized capital and stamp duty as applicable in each case.
- Issuance of certification of incorporation.
Opening a Bank Account:
Opening a bank account in the name of the business is one of the first tasks to be done after incorporation of the business entity. A Bank Account can be opened by submitting a copy of the Certificate of Incorporation and PAN Card of the entity.
Depending on the type of activity proposed by the business or vendor criterion or customer requirements, various tax registrations may be required for the business, as follows:
Central Excise Registration:
In accordance with Rule 9 of Central Excise Rules, 2002, below mentioned persons are required to obtain excise registration:
- Every manufacturer of dutiable goods
- First and second stage dealers desiring to issue Cenvatable invoices
- Persons holding warehouses for storing non‐duty paid goods
VAT Registration or TIN Number is mandatory for any person or entity, if the activity of the business includes sale of goods or products. VAT Registration or TIN Number is also required to become a seller on Amazon or FlipKart.
Service Tax Registration:
Service tax registration is mandatory for businesses that provide services and have an annual billing of more than Rs.9 lakhs. Service tax registration may also be mandated by customers or vendors of service.
TAN Registration is required for tax deduction at source (TDS). Therefore, TAN Registration may be required while hiring employees or dealing with certain customers or vendors.
ESI Registration will be required when the number of employees in the business exceeds 20. Proof of ESI Registration is often requested by businesses that outsource manpower requirements.