This is one of my favorite topics. If you are gonna start your business, you need a company. On "Why Company question", I would often cite all the theoretical knowledge that I have memorised the entire 4-5 years to crack my CA exams. However, the reality hit me when I decided to do a research myself. Not that what I had memorised was wrong, but the practical implications and the few tricks to actually get all the benefits of the Company Registration. Here are some of the Why's:
1. It is the most traditional form of organisation that's acceptable & prevalent in Modern India.
2. It provides the limited liability, in case of total loss, to the founders who are usually promoters/shareholders of the company. Limited Liability, a fancy word which essentially means that the personal property and cash flow of the promoters/shareholders will not be touched in case of total disaster.
3. Govt. loves to put lot of regulations to influence the control of the company. So, it has provided with Companies Act, 2013 and the relevant website to find out more about compliance is mca.gov.in
4. Company is a separate artificial entity that has the capability to sue & be sued. Essentially, from a legal perspective, it means the shareholders are different from the company and the directors are answerable to company. Hence, company is perpetual and shareholders may come & go, directors may come & go, employees may come and go but the company remains static, irrespective of structuring & restructuring.
5. VC Investors & PE funds prefer company as it helps them keep a check on the directors while keeping an option open to take over the company.
6. All strategic Investments and exchange of shareholdings can be possible to facilitate Mergers, Acquisitions, Restructuring, Holding & Subsidiary, etc. and creating a inter-company hierarchy to form a entire group.
Well, the list is endless and more can be discussed on this topic.
What exactly are the tricks to optimise this:
1. Timing of registration affects the cash flow of the company. For example, incorporating a company in February could entail an additional cost of Rs 15,000-20,000 which can be avoided by registering on or after 1st April! 31st March is the closure of financial year.
2. Determining the difference between shareholders & directors can help decide the roles of people who will actually contribute after the company is created.
3. Contracts can be entered on behalf of the company before the incorporation of the company by the promoters and this can be ratified by the company after it comes into existence.
4. Timely Compliance & Accounting can save hefty penalties.
5. When you operate through a company, be ready to shell out at least Rs 10,000-15,000 every year for RoC Compliance & Statutory Audit as specified under Companies Act, 2013 and rules made there under.
6. Get an experienced Chartered Accountant, who can help you remember all important dates and certifies all things you need to file with his certification. A good CA can help you register a company within 5 days from the date you submit all the documents and with all the paperwork done! A basic private limited company (with 2 directors & shareholders) with up to Rs 10,00,000 as authorised capital would cost you Rs 10,000-15,000! Getting the right CA can be tough.