Starting a new business can be thrilling, however the beginning administrative processes are crucial. The process of registration particularly has a myriad of risky pitfalls which could have lasting economic and legal consequences. Making a mistake at the start can result in compliance problems or disputes as well as unnecessary expenses.

For you to get off with the right foundation to start your journey, we’ve identified our top 10 most frequent mistakes that founders do when registering their companies.

1. Choosing the Wrong Business Entity

One of the initial and most important decisions to make is deciding on the best corporate organization. The founders are often confused by alternatives such as an One Person Company (OPC) or an LLP, a Private Limited Company, a Partnership and an LLP.

• The mistake: You rush the decision without taking into account funding plans, liabilities, or the possibility of scaling. The choice of an OPC is easy for entrepreneurs who have no partners, however it is not for everyone. A Private Limited Company is often the preferred choice of investors.
• It’s important to understand that the improper structure may create hurdles in funding, increase your tax burden, as well as put you at risk of personal liability.

2. Neglecting a Strong Founder’s Agreement

If you’re beginning with your co-founders, the enthusiasm will be at an all-time high. You may be tempted to avoid conversations that are “uncomfortable” conversations.

• The mistake: failing to draft a complete accord between the founders.
• The reason it matters What is it? : This document serves as your plan for your partnership. It should outline the roles, responsibilities, an equity split, vesting dates and the consequences if a founder leaves. In the absence of this, you risk creating the possibility of future conflicts.

3. A Poorly Researched Company Name

Your business name represents your brand’s identity however, it has to be legal and legally accessible.

• A common mistake is choosing the name which is like an existing business (or trademark) or that is not in accordance with the naming guidelines that are set out in MCA. Ministry of Corporate Affairs (MCA).
• The reason why it matters: A name cancellation is a waste of time and funds. And, even more importantly, if you begin using a name which violates an existing trademark, you may be subject to legal consequences.

4. Rushing the MOA and AOA

Its Memorandum of Association (MOA) as well as the Articles of Association (AOA) constitute the constitutional documents of your business.

• A common mistake is using the same template to create the MOA and AOA but not customizing them for the specific needs of your business. The MOA sets out your goals for the business as well as the AOA defines the guidelines to govern your internal affairs.
• What is important: Familiarly stated objectives in the MOA could limit the business’s activities in the future. Inadequately written AOA may result in internal conflict over the management of your company.

5. Skipping Essential Tax Registrations

The registration of your company (incorporation) is only one of the steps. It is also necessary to sign up for various tax purposes.

• A common mistake is forgetting or putting off GST registration. The majority of founders think they are able to hold off until they achieve an amount of turnover.
• The reason it matters: Failure to comply with GST regulations can trigger severe penalties. Additionally, you are not able to apply for input tax credits or provide legal GST invoices to customers which can harm your credibility as a business.

6. Ignoring Intellectual Property (IP) Protection

Your most valuable asset for a start-up could be the intangibles: your ideas or brand name logo, trademark, or even software.

• A common mistake is failing to protect the rights to intellectual property (like trademarks and copyrights) at an early stage of the procedure.
• The reason it matters: If you do not safeguard your intellectual property, anyone may copy your ideas or even brand name, which could destroy the unique advantage you have in your market.

7. Failing to Conduct Legal Due Diligence

Legal due diligence shouldn’t be just intended for investors. Founders need to conduct it prior to finalizing their company’s plan and structure.

• The mistake: not understanding the complete range of regulations and laws applicable to your particular business (e.g. Fintech or healthtech, electronic commerce,).
• The reason it matters: In ignorance of laws isn’t an excuse. Failure to adhere to industry-specific rules could result in penalties or even the shut-down of your company.

8. Overlooking Other Key Registrations

If your company is a little different depending on your business, you might require more than just incorporation or GST.

• A common mistake is not applying for additional licenses you need for example, the Shop and Establishment Act license Professional tax registration as well as one called an Import Export Code (IEC) when you are planning to interact with suppliers or clients from abroad.
• What is the issue? The inability to obtain the necessary licenses is unlawful and could result in penalties when inspections are conducted.

9. Not Using a Non-Disclosure Agreement (NDA)

When you’re in the initial stages at the beginning, you’ll discuss your idea for a business with prospective employees, partners, and suppliers.

• The error: Sharing confidential information without the Non-Disclosure Agreement (NDA) in place.
• The reason it is Important Why it is Important: An NDA is a basic legal instrument that binds both parties to confidentiality while also providing a layer of protection to your secrets of trade.

10. Underestimating Post-Registration Compliance

Your work isn’t over after you have received the certificate of incorporation. The process is only beginning.

• A common mistake is believing that registration is just a one-time or event, and not planning for continued legal and tax complying.
• The reason it matters: Businesses have to file annual reports and maintain a proper accounting system as well as hold board meetings and maintain legal records. If they don’t, it can lead to fines and could endanger the goodwill of your business.

Start Smart, Stay Compliant

The legal requirements that allow a company to begin can be a bit complicated. Common mistakes point out the necessity of meticulous plan and expert guidance. Making sure the registration process and compliance is done correctly from the start lets you focus on the most important thing: creating and expanding your business.

If you need expert advice on everything starting with choosing the best organization to ensure your compliance for the year Taxoo’s team of experts Taxoo is available to guide you through the whole procedure for you.

Also Read:

Step-by-Step Guide to Registering a Foreign Company in India

Top 10 Tax Deductions Every Indian Should Know