How to Register your 1st Company is 5 Easy Steps?

So you’ve decided to incorporate your first company but are lost in the maze of uncertainty and uncompiled knowledge? Go through this article to get a step-by-step guide to registering your first company.

First things first, congratulations! You are about to take a massive step in your life which might change the course of your career in ways you couldn’t even imagine. You are taking the first step towards being your own boss. Don’t take this responsibility lightly.

Step 1: Rethink your decision

Incorporating your own company is a major financial and legal liability. If you are not careful with all the legalities, you can fall into massive financial troubles in the form of government fines and regulations. There are multiple things you need to take care of regularly to be compliant with all government rules and regulations. You must also be up-to-date with the new norms the government announces which you’ll be liable to comply with.

I’ll cite a personal example here. Whixic Technologies Private Limited is registered in West Bengal. All companies in West Bengal have to register for something called Professional Tax. This doesn’t apply to companies in all states and hence I wasn’t aware of it. After about 8 months of incorporation, I received an email from the Government of West Bengal stating that I was fined Rs 3,375/- on a payment due of Rs 5,000/-. It also stated that on the failure of payment, I will be liable to further action from the Government of West Bengal.

The point of the example I mentioned was that it is important to be on top of things. Hence, you need to decide if you and your team are ready to take up this responsibility. You need to be sure that you are at a stage with your business idea where it is alright to take a risk and dive right into the nitty gritty of incorporating your first company.

Step 2: Choosing your business structure

Now that you’ve decided to plunge into the vast ocean of Business & Start-ups it is time to start making major business decisions. The first decision to make is your business structure. The structure you choose is going to decide the number of compliances you’ll have to follow, the flexibility you’ll have with onboarding investors/ co-founders and the liability you’ll have if you choose to take external capital. The way to choose the one which suits you the most is through elimination. There 9 types of business entities:

1. Limited Liability Partnership
2. Private Limited Company
3. Partnership Firms
4. Sole Proprietorship
5. One Person Company
6. Public Limited Companies
7. Section 8 Companies
8. Joint Venture Companies
9. Non-government Organisation

Most of these are not structures you would need to think about. There are 5 major business entities you’ll have to decide between. I’ll make it easier for most other people, if you are planning to raise money from investors choose a Private Limited Company. If that’s not a requirement, go through the questionnaire below.

Question 1: How many partners/ owners are there in your business?

1. You are running the company as the individual owner
2. Sole Proprietorship
3. One Person Company
4. You have a team of co-founders or planning to get more shareholders (owners) in the future:
5. Private Limited Company
6. Limited Liability Partnership
7. Partnership Firms

Question 2: Can you put in a little more initial investment?

1. Spend Less - Sole Proprietorship or Partnership Firm
2. Higher Initial Investment in set-up & compliance costs - One Person Company, LLP or Private Limited Company (minimum initial investment to add in your company is Rs 1 Lakh)

Question 3: How much liability of the firm are ready to take?

1. Proprietorship or Partnership firms have unlimited liability. This means that in case of any default on loans, the entire money will be recovered from the partners’ personal assets in the profit-sharing ratio. In this case, there is a high risk to the personal assets of the partners or founder.
2. Private Limited companies or LLPs have a limited liability clause. The liability of its members (shareholders, founders, investors etc) is restricted to the amount of contribution made by them or the value of the shares each member holds

Question 4: What Income Tax rates are applicable?

1. Proprietorship - The income in this case is clubbed with the founder’s personal income and is taxed in the personal ITR itself
2. Partnership or Pvt Ltd Company - Taxed at 30% (as of Jan’23)

Question 5: Are you planning to raise funds from investors?

1. Choose either an LLP or a Private Limited company. You won’t get funding with any other structure.

In all probability, you are confused between an LLP or a Private Limited company right now. This is where I was stuck too. In general, an LLP is suggested for:

1. Service-oriented or low-investment businesses. A social media agency or a boutique consultancy firm will benefit from an LLP
2. R&D expenses are generally an issue to manage in the income tax for LLPs
3. It is said that for firms that pay-out more than 25% of their net income then an LLP is preferred. Read more about it here.

The point to consider in the case of a Private Limited Company is that it is a scalable structure. It is easier to take investments from investors and to go public too. Given that you are a first-time founder, I suggest you take the safer route and go with a Private Limited Company if you are confused between an LLP and a Pvt Ltd company. Eventually, as you become more seasoned, you can take a more educated call in terms of the tax benefits and compliance requirements for different business types.

Step 3: Get your documents in place

You’ve officially made your first business decision and selected your business structure. The article will now focus on a Private Limited company. You can let me know if you want me to write about other business structures. It’s now time to get all your documents in place. You’ll need the following documents for each director (the founders are called directors in a Pvt Ltd company):

1. Proof of Identification (PAN Card/ Aadhar Card/ Driving License/ Passport) of all the company’s directors and shareholders
2. Proof of Address (Latest Telephone Bill/ Electricity Bill/ Bank Account Statement) of all the company’s directors and shareholders
3. Tenancy/ Rental Agreement and Letter or NOC from the landlord to use the office as the company’s registered office
4. Proof of Office Address (Sale Deed of Company Premises/ Ownership Deed)
5. DIN (DPIN in LLP) and DSC of All directors

Let me break down point 5. You might’ve never come across the terms DIN or DSC before this. DIN refers to “Director’s Identification Number”, this is a number that the government of India assigns you. If I have your DIN, I can uniquely identify each company you are a director in. You don’t have to worry about getting this. With the new Form SPICe+ (form for registration of the company), 3 new directors of the company are allotted DINs. What you need to get in place is your DSC which refers to your “Digital Signature Certificate”. This is a digital equivalent to your manual signature. The government of India has digitised most processes and hence a DSC is used in place of traditional signatures. This is an expensive process. The most trusted source for this in India is e-mudhra.

Step 4: Decide how you are planning to do the government process

This is where things get tricky. There are complicated forms you must go through to register your company. I’ll outline the major steps of the process but before that, you need to decide if you want to do the process yourself or want to take help from an agency. You will need a CA’s signature on the forms and will have to get an auditor for your firm within 30 days of registration. This is why I suggest you talk to a few CAs and check out online firms. I got my company incorporated from VakilSearch, they charge nominal service charges and offer decent customer service. Razorpay Rize, an accelerator I’m a member of, also offers free-of-cost incorporation services. You can look for other sources on the internet too. Here’s a brief overview of the process:

Fill in Form SPICe+ - Inc 32 (Form for registration of new companies from 23rd Feb, 2020) on MCA Website:

1. Part A: Reserving the name with two proposed names and one re-submission. In case of rejection, the applicant has to re-file with a prescribed fee. After the approval of the name, it will be reserved for 20 days within which the company must process for incorporation by filing Part-B of the SPICe+ form. It is better to make a combined application because if your name application gets rejected, you will be allowed to file the same form without any extra charge of paying Rs 1000/- both times. Your brand name and company name need not be the same. There are multiple restrictions to choosing your company name. Check out the availability of the name here before submitting it.
2. Part B: Part B enables the web-based incorporation and serves the following purposes with the benefit of a single application:

• Application for allotment of DIN (only 3 new DINs in one form)
• Reservation of Company Name
• Incorporation of a new company
• Application for PAN and TAN (mandatory)
• Application for EPFO Registration (mandatory)
• Application for ESIC Registration (mandatory)
• Application for opening a bank account for the company (mandatory)
• Allotment of GST (optional)

3. The digital signature of a professional is required to file Form INC-32. CA, CS, Cost Accountant or Advocate.

The fees to be paid in the incorporation process:

The amount of fee varies on various factors such as Authorised Capital Amount, Number of Subscribers, Location of the company, etc as well as stamp duty structure differs from state to state. But, mainly 5 kinds of Fee liable to be paid along with the SPICe+ form may be classified as follows:

1. The filing fee for the SPICe+ form
2. Registration fee for MoA
3. Registration fee for AoA
4. DSC charge
5. Stamp duty as applicable for SPICe+/ MoA/ AoA

As of Jan’23, it cost around Rs 7,500/- in government fees. We paid around Rs 1,000/- to VakilSearch as a service charge. Try to minimise the amount you pay as a service charge. Some firms charge you as much as Rs 35,000. Stay away from these firms.

Step 5: The process has just begun

You should receive an email with your Certificate of Incorporation from the Government of India within 15-20 days. Congratulations! You just started up. But, this is just the beginning. You need to keep track of multiple compliances and also work on building your business. There are many benefits available to start-ups too. In the upcoming blogs, I’ll outline the post-incorporation compliances and will also list out some start-up benefits you just cannot miss. Register for my newsletter so that you do not miss the next article. I’ll outline ways for you to get benefits worth more than $50,000!