During the post-Covid era, India has seen a steady rise in start-ups. There can be no doubt that this is a positive trend, but it leaves us with two important questions with regard to startups. Firstly, whether the business should be registered in the first place. If yes, the next question is register startup company whether only a private limited company should be registered or a limited liability partnership (LLP).
A majority of budding entrepreneurs consider registering their start-ups to be an unwelcome burden since it involves an endless list of legal requirements. Furthermore, a start-up doesn’t have a lot of money, which makes them think twice about spending on registration. The process of closing down a start-up becomes more difficult and cumbersome if the business fails to take off and the owner wishes to end it due to obvious reasons.
The following are a few reasons why register startup company might be a good idea, no matter how difficult it might seem to an entrepreneur:
Register Startup Company Creating a legal identity :
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A business looks more credible and trustworthy when it is incorporated as a legal entity, such as a private limited company. To have a unique identity on the market, the firm’s name is also trademarked.
Bank Account:
It is not possible for a business to carry out the necessary financial transactions unless it is registered legally. For this reason, a current account needs to be active at an authorized bank.
Taking on Contractual Obligations:
It is preferable when the start-up enters into contracts with customers or other potential businesses to have the start-up be a separate legal entity. The start-up would eliminate any personal liability on the part of its members.
Obtaining an appropriate payment gateway:
After a business is established and financial transactions begin between parties, there arises a need for online payments through various payment gateways such as PayU, Razorpay, etc. that authorize credit or debit card transactions. Business registration is mandatory in order for the business to work with payment gateways.
Available funds:
Registered businesses have easier access to funds than unregistered businesses. Venture capitalists can raise funds for a private company, for example.
Selecting the Right Corporate Entity:
As soon as the owner decides the company should be registered, he or she is faced with the choice between an LLP (Limited Liability Partnership) or a private limited company. We’re wondering why sole proprietorships and OPCs (One-Person Companies) aren’t included.
The start-up can be registered as either an OPC or sole proprietorship. We don’t recommend these types of entities for start-ups because they don’t make sense for attracting investors. A sole proprietorship also gives the owner unlimited liability. That leaves the owner with two sane options, either a private limited company or an LLP.
Establishing a Startup as an LLP:
LLP is the most suitable corporate entity for start-ups as it combines the advantages of a private limited company with the flexibility of a partnership firm. An LLP firm enjoys perpetual existence and can enter contracts by itself. It can also purchase or hold property of its own.
Despite the fact that LLPs require fewer compliances, they have certain inherent disadvantages. Register startup company For instance, whether or not the start-up is active, tax returns must be filed annually if the company is incorporated as an LLP. There must be at least two partners in an LLP. If a startup company is the brainchild of a single entrepreneur, it may not be able to incorporate as an LLP with two partners.
The steps to form a private limited company are as follows:
Private limited companies are often the preferred choice in many businesses because they are easy to raise funds through. Considering the volatile nature of start-ups, private limited companies can be easily sold or transferred if the owner wishes. Furthermore, a start-up may not have much capital to invest; fortunately, a private limited company does not have a minimum capital requirement. In addition, a private limited company can take advantage of foreign direct investment (FDI). In addition, a private limited company has the highest credibility among all the corporate entities, making it the best choice for startups.