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Importance & Benefits of Company Registration for Startup Business

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Last Updated on June 25, 2024 by Kanakkupillai

Starting a company is always a good idea, anyone can decide to start a new business. Actually, before deciding, it is always better to go for research to understand the process and procedure to start a company. Planning, Preparing, Registering, Launching, and establishing the business is the right way to start a business. The most important step in starting a company is registering the Company.

There are many advantages to registering your company, here in this article we look at the advantages of registering. Company registration is mandatory in India to run a business in the Indian market. Knowing the advantages of company registration is very important and it will be useful for all new business entities to start a business in the right way.

What is Company Registration?

The process of registering your business with the appropriate authorities is referred to as “company registration.” It denotes that if you register as a company, you are granted formal permission to engage in commercial activity.  A company is a type of business organization, which is made by law. It is usually an affiliation of persons, joined to undertake business organization, holding a different legal entity, perpetual succession, and a common seal. It is a legal existence integrated under the Companies Act, 2013, or any other former acts, dominant in India.

Importance of Company Registration

Startups should be incorporated for many reasons. Company registration gives your startup a competitive edge, legal security, tax savings, and liability reduction. As mentioned, company registration is basic, easy, and affordable. Today most of the reputable companies in the nation are registered. Entrepreneurs’ personal worries are reduced by company registration.

Advantages of Registering a Company

The advantages of registering a Company are elaborated on below.

1. Limited Financial Obligation

The most important benefit of registering a company is the limited liability bestowed upon the company’s directors and shareholders. Bad events like business failures or any other business crisis are not always under an enterpriser’s control in a company; therefore, the person can secure his personal assets in the event of a crisis.
If the Company becomes bankrupt and is liquidated, only the assets of the company are utilized to solve the money or its debts or any other problems. The company’s Directors or Shareholders will be safe as their personal liabilities are not made bankrupt and are free to run their business.

2. Legal Entity and Status

A company is a legal entity; any person can launch and establish it under the Act. The existence of a company is different from its directors and shareholders. Private limited company status is to be taken more seriously as it gives a sense of confidence to all the suppliers and customers about the business. Most of the larger organizations will always prefer private limited companies when compared with proprietorship/partnership organizations.
With a flexible and wide range of management designations, the company can easily attract a quality workforce and accomplish strategic motivation to employees.

3. Eternal Succession

Another important advantage of registering a Company is eternal succession. The existence of a company will remain the same, even if the directors may come and go and the shareholders may come and go.  Once the company is incorporated it remains alive till it is wound up by abiding by the provisions of the Law. The death, retirement, or disability of the director or any of its members does not affect the Company from continuing, irrespective of change in the memberships.

4. Cost and Risk Factors

If you are planning to go for high capital expenditure or hi-tech projects then it is always better and advantageous to go by registering your business as a company, as the financial stake involved in the hi-tech project is high. Even Banks and Financial Institutions insist on registering the business as a company while approving business loans or financial assistance instead of going for some other types of organizations.

5. Easy Transferability

If you register a company, it is easy to sell the business as all you require is to change the entire shareholding rights to the Buyer and therefore it is easy to transfer the ownership and management by simple agreement. In this way, money, time, and importantly the big process of stamp duty are also saved in a Company.

6. Dual or More Relationship

By registering your business as a company form of organization, it gets the potential to make a valid and effective contract with any of its directors and shareholders. Apart from employment, the person also is in control of the company at the same time. Like, a person can be a shareholder, creditor, and employee and also can be the director of the company at the same time. A person can benefit from all his roles for example: if the shareholder of the company is the creditor, he/she can receive dividends and also can earn interest.

7. Borrowing Funds

If you register your business as a Company, you can enjoy all types of funds. Most banks and financial institutions usually prefer to provide large financial assistance to the company when compared with other forms of organizations like proprietary concerns or partnership firms.

8. Taxation

Organizations that are registered as a Company will pay Corporate tax on their profits. It also holds a wider range of leeway and tax deductible costs which you can deduct against a company’s profits.

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Different Types of Companies in India

Types of Companies On the Basis of Members

1) One-Person Company or OPC: As the name indicates, it can be incorporated by a single person.  This is a new category of company specially introduced to boost young and startup entrepreneurs. It also encourages the concept of corporation business. Importantly, you should note that it is not like the sole proprietorship firm, the OPC has a separate legal existence with limited financial obligation.

2) Private Company: A private company needs two or more persons to register the company under the Companies Act. It cannot participate in a recognized stock exchange, and also cannot receive shares/debentures from the public. The limit of the number of members in a private company is up to 200.

3) Public Company: A minimum of seven members are needed to form a Public Company. The securities are listed on a stock exchange, and their shares can be transferable freely. There is no restriction on the maximum number of members.

Types of Companies On the Basis of Liability

1) Company limited by shares: This type of company is one in which a memorandum of association defines that the liabilities of the shareholders are restricted to the sum of money unpaid on shares that belong to them. Therefore, the shareowners are liable only to the extent of shares that they own.

2) Company limited by guarantee: This type of company registration online liability of members is fixed to a certain amount which is stated in the MoA of the company.

3) Unlimited Company: As the name indicates, the liability does not have any limit. In an Unlimited Company, the liability of the member ceases when he/she quits being a member of that company.

Special Companies

1) Government Company: In this type of company, at least 51% of the share capital is owned by the State Government/Central Government, or partly by the state and partly by the central government.

2) Foreign Company: It is a company that has a place of business in India but is registered outside India. This type of company can run by way of an agent or deals online and attempts business operations in the country in any other way.

3) Section 8 Company: It is a non-profit type of company, created for a charitable object like to encourage commerce, social welfare, science, environmental protection, religion, sports, art, education, research,  etc. Central Government provides special licenses to these types of companies. This company uses its profit for the promotion of the object and members of this company are not paid.

4) Public Financial Institution: The Company that works in the financial and investment business comes under this type of company. And, its 51% or more share capital is invested by the State Government/Central Government, or partly by the state and partly by the central government, and is established under any Central or State Act like LIC, ICICI, UTI, etc.

Types of Companies On the Basis of the Control

1) Holding Company: A parent company that owns and controls the Board of Directors of another company i.e. subsidiary company is called a holding company.

2) Subsidiary Company: Subsidiary Company is a company in which 51% of its total share capital is possessed by another company.

3) Associate Company: An Associate company is a company over which another company has considerable influence. It also includes joint venture companies. The considerable influence involves controlling a minimum of 20% or more of total voting power, or company decisions, as per the agreement in which both the companies signed.

Conclusion

If you are operating a start-up, registering a company is the first and most reliable procedure. Company registration is one of the essential steps in the process because it offers a variety of advantages and is of prime significance. It gives you the ability to control the industry. Making the choice to register a company is crucial for your ability to compete with rival businesses and build a solid reputation in the marketplace.

Kanakkupillai

Kanakkupillai is your reliable partner for every step of your business journey in India. We offer reasonable and expert assistance to ensure legal compliance, covering business registration, tax compliance, accounting and bookkeeping, and intellectual property protection. Let us help you navigate the complex legal and regulatory requirements so you can focus on growing your business. Contact us today to learn more.