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TDS & TCS Provisions as per Section 194Q and Section 206C(1H)

TDS u/s 194Q and TCS u/s 206C(1H)a

Introduction of Provisions – Section 194Q was introduced and inserted in the Income Tax Act, 1961 vide the Finance Act, 2021 and it is applied from 1st July, 2021. While Section 206C(1H) was introduced and inserted in the Income Tax Act, 1961 vide the Finance Act, 2020 and it is applied from 1st October, 2020.

Applicability of Section 194Q
It is applicable on buyer who is responsible to pay any sum to any resident seller for purchase of any goods including capital goods of the value or aggregate of such value is more than Rs. 50 lakhs in any previous year.
Buyer – For this section buyer will be the person whose total sales, gross receipts or turnover from the business carried on by the buyer is more than ten crore rupees in the immediately preceding financial year in which specified purchase of goods take place.

Time of Deducting TDS
TDS under this section will be deducted by the buyer within earlier of the following time provided below: –
TDS under this section will be deducted at the time of credit of such sum to the account of the seller, even if such sum is credited to the suspense account or any other account by any other name in the books of the person liable to pay such income
or at the time of payment of such sum by buyer by any mode

Rate of deduction of TDS
TDS shall be deducted by the buyer at 0.1% on amount in excess of Rs. 50 lakhs and in case PAN of seller is not available then buyer shall deduct tax at 5% rate on such some.
Exception to this section
The provisions of this section shall not be applicable on transactions on which TDS is deductible in any other provisions of Income Tax Act, 1961 and transactions on which TCS is collectable under section 206C. However, in case of transactions where TCS is collectable under section 206C(1H) provisions of section 194Q will override.

Example – Mr. Raju purchased goods worth Rs. 60 lakhs plus GST @5% from Mr. Darshan and credits the same in his books of account on 28-07-2021. Turnover of business carried on by Mr. Raju in FY 2020-21 was Rs. 12 crores. Compute TDS under section 194Q.
Case (1) Where Mr. Raju makes payment on 15-07-2021.
Case (2) Where section 206C(1H) is also applicable.
Case (3) Where section 194O is also applicable.
Case (4) Where Mr. Darshan is not furnishing his PAN.

Solution – Mr. Raju purchased goods worth Rs. 60 lakhs which exceeds Rs. 50 lakhs and turnover of business carried on by Mr. Raju is also more than Rs. 10 crores in previous year which satisfies both the conditions for applicability of section 194Q. TDS will be deducted on amount in excess of Rs. 50 lakhs, which is Rs. 10 lakhs. Therefore, TDS will be Rs. 1000.
Case (1) TDS will be deducted on 15-07-2021 because date on which such sum is credited in books of account or date of payment of such sum whichever is earlier will be the date of deduction of TDS.
Case (2) In case section 206C(1H) is also applicable, section 194Q will override.
Case (3) In case TDS is deductible in any other section as well except under section 206C(1H), TDS will be deducted in that other section. Therefore, TDS shall be deducted under section 194O.
Case (4) Where PAN of seller is not available TDS will be deducted @5%. In this case TDS shall be Rs. 50,000.

Applicability of Section 206C(1H)
It is applicable on seller for sale of any goods of value or aggregate of such value exceeding Rs. 50 lakhs in any previous year received as sale consideration from the buyer.
Seller – For this section seller will be the person whose total sales, gross receipts or turnover of the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding the financial year in which such sale of goods is carried out.
Buyer – For this purpose buyer means any person who purchases any goods, but does not include-
the Central Government, a state Government, an embassy, a High Commission, legislation, commission, consulate the trade representation of a foreign trade; or a local authority; or a person importing goods into India
Time of collecting TCS Here, TCS under this section shall be collected at the time of receipt of sale consideration from the buyer.
Rate of collection of TCS TCS shall be collected by the seller on a sum equal to 0.1% of the sale consideration exceeding Rs. 50 lakhs. However, if the buyer has not provided PAN or Aadhar number to the seller then TCS shall be collected at 1% under section 206CC.
Circular no. 20/2017 No adjustment is required to be made for sales return, discount or indirect taxes including GST for the purpose of collection of tax under this section. Exception to this section TCS will not be applicable in the following cases-
Goods being exported out of India Sale of goods under section 206C(1) – TCS on sale of tendu leaves, alcoholic liquor for human consumption, timber obtained under a forest lease, timber obtained by any mode other than under a forest lease, any other forest produce not being timber or tendu leaves, scrap, minerals being coal or lignite or iron ore Section 206C(1F) – TCS on sale of motor vehicles
Section 206C(1G) – TCS on foreign remittance
Where buyer is required to deduct TDS on goods purchased from the seller.

Example – Mr. Darshan sold goods to Mr. Raju worth Rs. 60 lakhs. Mr. Raju makes payment on 12-07-2021 for the same. Turnover of business carried on by Mr. Darshan was Rs. 12 crores FY 2020-21. Compute TCS under section 206C(1H).
Case (1) – Where Mr. Raju is importing goods into India.
Case (2) – Where Mr. Darshan is exporting goods outside India.
Case (3) – Where Mr. Raju purchased alcoholic liquor for human consumption from Mr. Darshan.
Case (4) – Where Mr. Darshan sold car to Mr. Raju.
Case (5) – Where Mr. Raju (NRI) remitted sum to Mr. Darshan, a dealer in India.
Case (6) – Where TDS is deductible under section 194Q.
Case (7) – Where Pan or Aadhar number of buyer is not provided.

Solution – Mr. Darshan sold goods to Mr. Raju worth Rs. 60 lakhs which exceeds Rs. 50 lakhs and turnover of business carried on by Mr. Darshan is Rs. 12 crores which exceeds Rs. 10 crores. So, both the conditions are satisfied by Mr. Darshan. Hence, Mr. Darshan is liable to collect TCS on amount in excess of Rs. 50 lakhs. TCS for the above transaction will be Rs. 1000.
Case (1) – In case of importing of goods into India TCS will not be collected as it is exception of this section.
Case (2) – In case of exporting of goods outside India TCS will not be collected as it is exception of this section.
Case (3) – Purchase of alcoholic liquor for human consumption is collected under section 206C(1). Therefore, TCS will not be collected under section.
Case (4) – TCS shall not be collected on sale of car as it is collected under section 206C(1F).
Case (5) – TCS shall not be collected on foreign remittance as it is collected under section 206C(1G).
Case (6) – TCS shall not be deducted under this section where TDS is required to be deducted by the buyer.
Case (7) – TCS shall be collected at 1% rate if Pan or Aadhar number is not provided by the buyer. Therefore, TCS will be Rs. 10000

Example – Mr. Darshan sold goods to Mr. Raju worth Rs. 55 lakhs and 60 lakhs plus 5% GST respectively. Compute TCS for second transaction under section 206C(1H). Mr. Raju makes payment on 12-07-2021 for the same. Turnover of business carried on by Mr. Darshan was Rs. 12 crores FY 2020-21.
Solution – As goods sold to Mr. Raju already exceeded Rs. 50 lakhs in first transaction, TCS will be collected on full amount of Rs. 63 lakhs (including GST). TCS under this section shall be Rs. 6300 followed by circular no. 20/2017.

TP-Methods

Transfer Pricing Methods for Calculation of Arm’s Length Price

Methods to determine the arm length price

As per the Indian transfer pricing provisions, income arising from an international transaction with an associated enterprise must be computed having regard to the arm’s length price. The calculation of the arm’s length price must be done by using the most appropriate method and we need to select the most appropriate method from the following methods:
Comparable Uncontrolled Price [‘CUP’] Method;
Resale Price Method (‘RPM’);
Cost Plus Method [‘CPLM’];
Profit Split Method [‘PSM’];
TNMM; and
The Other Method.

Rule 10C (2) of the Rules lists the factors that should be considered in selecting the most appropriate method. Some of the factors are:
The reliability, availability and coverage of data necessary for the application of the method;
Reliability and accuracy of adjustments to account for differences, if any, between the international transaction between the associated enterprises and the comparable uncontrolled transaction; and
The nature, extent and reliability of assumptions required to be made in the application of the method.

CUP
The CUP Method should be applied where AEs do the same/comparation transactions with unrelated enterprises also, as is being done between the AEs. Internal CUP involves a comparison of prices paid/charged between one of the parties to the controlled transaction and an unrelated third party in uncontrolled conditions, whereas in external CUP involves we need to compare prices charged/paid between two unrelated parties for comparable transactions. If transactions are not exactly comparable, then some adjustments need to be made according to the nature of transactions so that transactions could be compared.

RPM
The RPM determines the arm’s length price by reference to the gross profit margin realised in a comparable uncontrolled transaction. The RPM method is appropriate in cases of the purchase and resale of tangible goods/services in which no substantial addition/alteration done by the buyer/reseller. Gross profit margin needs to be determined in uncontrolled resale transactions and the same GP Margin can be applied in controlled transaction to determine the arm length price.

CPLM
The CPLM can be applied in cases of manufacturing or processing of tangible goods that are sold to related parties. In this method, we determine gross profit margin on cost (both direct and indirect) earned by the manufacturer in uncontrolled transactions and the same gross profit margin can be applied in controlled transaction to determine the arm length price. In some cases, the gross profit margin needs to be adjusted to take into account differences between the international transaction and the comparable uncontrolled transaction, which could materially affect the mark-up in the open market.

PSM
The PSM is mainly applicable in international transactions involving the transfer of unique intangibles or in multiple international transactions that are so interrelated that they cannot be evaluated separately for the purpose of determining the arm’s length price of any one transaction. Profit can be divided between two AEs on the basis of the function performed, assets employed and risk assumed by both the AEs.

TNMM
The TNMM compares the normal net profit margin, computed in relation to costs incurred or sales effected, or assets employed or having regard to any other relevant base, realised by an AE to the net profit margin realised by unrelated enterprises from comparable uncontrolled transactions. Further, the standard of comparability between the transaction being evaluated and comparable transactions is comparatively less strict, compared to other methods.

Other Method
Under the Other Method, the arm’s length price of an international transaction can be determined by taking into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-AE, under similar circumstances, considering all the relevant facts.

Groomtax transfer pricing expert team can assist in transfer pricing study, in determining the arms length price and transfer pricing audit (Form 3CEB) and litigation. You can reach out to us for more information

Requirements For Company Registration In India

What Are The Requirements For Company Registration In India?

The choice of the appropriate company structure for your firm is just as crucial as any other business-related decision. Your company can run effectively and achieve your necessary business goals with the help of the proper business structure. Every company in India is required to register in order to comply with the law. Let’s attempt to comprehend the various business formats in India before learning how to register a corporation.
Starting a business is an extremely exciting time for a startup, and incomplete paperwork may cause unneeded confusion and delay in the company’s registration. Our attention is on the prerequisites for setting up a business, or more specifically, on the preparations required to incorporate under the 2013 Companies Act. The legal procedure of registering a company is completed with the issuance of the certificate of incorporation. We’ll go over all the steps you need to take to get your new business the certificate of incorporation.

You might be debating whether or not you require a professional service provider in order to form a private limited corporation. Without a doubt, the answer is yes. You require the assistance of qualified service providers like GroomTax. We assist the early-stage entrepreneurs with company registration before assisting them with managing tax and regulatory compliances. As previously said, the examination of the requirements to register the company is the first step in preparing to register a company in India.

Here Are The Requirements For Company Registration
  • Company’s total number of shareholders
  • Directors in Number (Composition of Board of Directors)
  • An Indian Resident Director is required.
  • Reliable and appropriate Name (Name Approval Guidelines)
  • Address of the Registered Office and Owner’s NOC
  • Capital Requirement (Authorized Capital Vs Paid-up Capital)
  • Documentation for registering a business.
What Kinds Of Company Structures Exist In India?

Let’s attempt to comprehend the many business formats that are available in India. Listed below are a few of them:

One-Person Company (OPC)
An OPC, which was just recently launched in the year 2013, is the easiest approach to launch a business if there is only one promoter or owner. It permits a lone owner to continue working while remaining associated with the corporate structure.

Limited Liability Partnership (LLP)
An LLP is a distinct legal entity where the partners’ obligations are constrained to the amount of their agreed-upon contribution. The Limited Liability Act of 2008 requires the Registrar of Companies to create an LLP (ROC).

Private Limited Company (PLC)
A PLC is recognised by the law as a distinct legal entity from its founders. Directors and stockholders (stakeholders) are present (company officers). Every person is viewed as a member of the workforce.

Public Limited Company
A Public Limited Company is an unpaid membership organisation that has been legally established. It has a distinct legal existence, and each member’s liability is only for the shares they own.
You can select the business structure that best meets your needs and register your company using that structure.

Other types of company models include partnerships, sole proprietorships, and Hindu undivided families. Please remember that these structures are not covered by company law.

Why is it important to choose the right business structure?

Your income tax returns will rely on the business structure you choose, so be sure to do your research. When registering your business, keep in mind that there are many degrees of compliances that must be completed depending on the business structure. A sole proprietor, for instance, is simply required to file an income tax return. However, a business must submit annual reports to the Registrar of Companies along with an income tax return.

The annual audit of a company’s books of accounts is required. Spending money on auditors, accountants, and tax filing professionals is necessary to comply with these legal requirements. Therefore, while considering company registration, it is crucial to choose the appropriate corporate structure. An entrepreneur needs to know exactly what kind of legal compliances they are willing to handle.

Investors will always favour a recognised and lawful business structure, even though some business models are more favourable to investors than others. An investor might be reluctant to give money to a lone proprietor as an example. On the other side, investors will feel more at ease making an investment if a solid company idea is supported by a recognised legal structure (such LLP, Company, etc.)

How should a business structure be chosen when registering a company in India?

Before choosing a business structure, every entrepreneur must ask himself or herself a number of crucial issues.

* How many owners or partners will there be in your company?
A one-person company would be the best option for you if you are the sole owner of the startup capital needed for the business. On the other hand, a Limited Liability Partnership (LLP) or Private Limited Company would be suitable for you if your company has two or more owners and is actively looking for investment from other parties.

* Should your choice of business structure be based on your initial investment?
A sole proprietorship, HUF, or partnership business might be a great choice if you wish to start off with less money. However, you can select a One Person Company, LLP, or Private Limited Company if you are confident that you will be able to recoup the startup and compliance fees.

* Willingness to assume all of the business’s obligation
Business entities with unlimited liability include sole proprietorships, HUFs, and partnership firms. This means, in case of any default in loans, the entire money will be recovered from the members or partners in profit sharing ratio. In these situations, there is a substantial risk to personal property.
Companies and LLPs, however, have a limited liability provision. This indicates that each member’s responsibility is limited to the amount of their contribution or the value of the shares they own.

* Rates of Income Tax That Apply to Businesses
The standard slab rates for income tax apply to sole proprietorships and HUFs. In a sole proprietorship, the business’s revenue is combined with the owner’s other earnings. However, a tax rate of 30% is applicable to other entities, such as partnership firms and corporations.
To learn more about Income Tax Slab Rates: Income Tax Slab Rate List

* Plans to raise capital from investors
As was previously indicated, when your business structure is unregistered, it is challenging to attract investors. When it comes to investments, organisations like LLPs and Private Limited Companies are trusted. Make sure you select the appropriate structure, and ask a professional for assistance so that you can register under the correct direction.

 

What are the required Documents for Company Registration?

The following general documents must be supplied in order to register an LLP, One Person Company, Private Limited, or Public Limited Company:

Documents from the company’s directors and shareholders/LLP partners:

* Identification documentation for each director and shareholder of the company (partners in case of LLP). You may provide any of the following documents as identification proof:
-Pan Card
-Aadhar Card
-Driving License
-Passport

* Address verification for each director and shareholder (partners in case of LLP). Any of the following papers may be used as address verification:
-Recent phone bill (not older than 2 months)
-Most recent electric bill (not older than 2 months)
-Address on bank account statement
-DSC and DIN for each director (or DPIN for LLP directors) (partners in case of LLP)

Documents of the LLP or Company

* Proof of the company’s registered office. The following paperwork must be provided as proof of the company’s address:
-Agreement for a lease or rent between a company or LLP and the landlord
-A letter or notice of consent (NOC) from the landlord granting authorization to use the space as the registered office of the LLP or corporation.
-Sale agreement for the company’s or LLP’s office space in their names
-The Memorandum of Association (MoA), which outlines the purposes for which the business will be incorporated as well as the members’ legal obligations.
-The company’s operating rules are set down in the articles of association (AoA).

How Does GroomTax Aid in the Process of Simplifying Company Registration?

You may easily establish your business using GroomTax in about 10 days (subject to departmental approvals). Our package for registering a corporation includes:

-Application of your company’s name
-Getting two directors’ DINs
-filing of the SPICe+ form
-Stamp Duty payment for authorised capital up to Rs. 1 lakh, excluding Punjab, Madhya Pradesh, and Kerala
-The issuance of the certificate of incorporation, together with the PAN and TAN

Since GroomTax’s company Registration process is entirely online, you can save time and money by avoiding a trip to our office.

How To Register Your Company In India And What Are The 10 Common Mistakes You Can Avoid During Company Registration?

How To Register Your Company In India And What Are The 10 Common Mistakes You Can Avoid During Company Registration?

On a yearly basis, more than 120,000 firms are registered. The private limited company is a preferred corporate form in India because of features like limited liability, perpetual succession, staff attraction, and dual director responsibilities. As opposed to LLPs, private limited companies can more easily raise bank loans, venture capital funds, and outside equity investments. There are numerous business structures from which to pick if you intend to launch a firm. The organizational structure you select will dictate the taxes you must pay, the compliance requirements you must adhere to, and the eligibility requirements you must satisfy. Therefore, choosing which forms of company registration to do in India is one of the most important decisions an entrepreneur can make.

Types of Company Registration

The main method used by business owners to found or incorporate their firm is company
registration. Entrepreneurs must make sure they select a company type that fits their operations
because there are many different forms of business in India. India’s Companies Act of 2013 provides seven additional business structure choices:

Private Limited Company

Businesses that need to register as private entities can benefit from private limited corporations. To assist safeguard their own assets, the shareholders in this sort of organization divide the obligation among themselves. The sum of all the shares that each shareholder in such business types has is the total capital. In order to provide for better safety and security, the members’ personal and professional assets are also seen as separate. Such shares cannot be sold or exchanged on a public market.

According to the Companies Act, the following requirements must be satisfied in order to qualify for this type of business registration:

  • Two minimum and fifteen maximum directors
  • At least one director needs to be an Indian citizen
  • Two shareholders or members at the very least, and 200 at the most
  • In addition, an authorised capital fee of at least one lakh rupees
  • The registered office must be located in India.

With GroomTax, you can get your private limited company registered easily.

Types of Private Companies
  • Limited by shares: In these private limited businesses, the members’ liability is capped at the fair
    the market value of the shares they possess
  • Limited by guarantee: In this instance, the amount that the members will contribute to or promise
    to pay in the event that the company files for bankruptcy limit the liability of the members.

Public Limited Company

A public limited corporation is one whose shares are available to the general public to acquire. There is no cap on the number of shares that can be bought, sold, or traded in such company entities. The fact that the company’s shares are traded freely because they are listed on the stock exchange makes the shareholders co-owners of the business. Before starting their operations, these businesses must get a certificate of registration from the RoC.

According to Companies Act of 2013 , the following requirements must be satisfied in order to register as a public limited company:

  • At least three directors
  • At least one director needs to be an Indian citizen.
  • Seven shareholders at a minimum, with no upper limit.
  • A minimum approved capital fee of 5 lakh rupees.
  • The registered office must be located in India.

Partnership Firms

Partners who have agreed on the role and profit sharing are the ones who manage operations in partnership firms. The partnership deed is a verbal agreement that specifies the roles, responsibilities, authority, and number of shares held. These businesses are subject to the Indian Partnership Act of 1932.

If a partnership deed is legitimate and recorded, a firm can operate with or without a license. However, because it grants them more rights and benefits, the majority of partnerships do register.
Following are the requirements to form a partnership:

  • Two minimum and no more than ten maximum partners.
  • Must have an Indian registered office address.
  • All partners must sign a recognised partnership deed

Limited Liability Partnership(LLP)

The limited liability partnership, sometimes known as an LLP, is a brand-new business structure in India. It has a distinct legal position that aids in separating personal and corporate assets and offers the business owners limited liability protection. The amount of share capital determines each partner’s responsibility in LLPs.

The following requirements must be satisfied in order to form an LLP:

  • Minimum Authorized Capital of Rs. 1 lakh
  • There must be at least one Indian resident among the designated partners.
  • Two partners at a minimum, with no maximum.
  • If the other partners are corporations, at least one of them must be a person.
  • No joint capital is required because each partner must earn a specific amount.

One Person Company(OPC)

OPC, the newest addition to the variety of company registration procedures permitted in India, is excellent for small firms. It is the best option for entrepreneurs that want to run a company on your own. Business owners can benefit from liability protection without creating a partnership thanks to the OPC’s unique legal standing.

An OPC is simple to incorporate and control because there is just one person involved. It primarily functions as a hybrid of the private limited company and sole proprietorship business entity models. The requirements listed below must be met in order to register as an OPC:

  • A minimum of one lakh rupees in approved capital
  • The person must be an Indian citizen by birth and a resident of India.
  • Prior to incorporation, the promoter is required to designate a nominee.
  • A financial business cannot establish an OPC.

Sole Proprietorship

A sole proprietorship is a company where the operations are managed by just one person. Since the owner and the business are seen as a single entity, their gains and losses are entirely their own responsibility. Since the owners’ names appear on the registration, the owners’ names will also appear on tax returns and accounting reports, creating an indefinite amount of legal obligation for the corporation. Nevertheless, it is the simplest type of business to start and maintain. Owners of home businesses appreciate this because it doesn’t demand a lot of capital or regulatory compliance

Section 8 Company

Section 8 companies, sometimes known as non-profit organisations, operate for philanthropic causes. The goal is to advance the humanities, sciences, literature, education, humanitarianism, and environmental protection. Additionally, all of the income they make is spent to accomplish these goals, and none of the members receives dividends.

You must satisfy the following requirements in order to register a Section 8 business:

  • Two shareholders at a minimum
  • There must be a minimum of two directors, who may also be stockholders.
  • At least one director needs to be an Indian citizen.
  • No minimum investment is necessary
  • Requires an Indian registered office address.
Benefits of Company Incorporation With the assistance of GroomTax, you can quickly register any of these sorts. Similarly, our professionals will handle the entire process and address any of your inquiries.
Here Are 10 Common Mistakes You Can Avoid During The Company Registration Process

1. Incorrect Company Names

Prior to forming your startup firm, choosing a new and distinctive name for the purpose of
company registration is the first and most important duty. The naming of a corporation is
governed by a number of laws, rules, and traditions, but the Companies Act of 2013, the
Trademark Act of 1999, and the Names and Emblems Act of 1950 are the most pertinent ones.
Here are the rules that regulate a company’s name, in addition to some stipulations laid out in the
Company Incorporation Rules, 2014 that also lays out precise recommendations for the same.

The fundamental guidelines for choosing a company name are outlined in Section 4 of the Companies Act of 2013. The name of the company cannot, in accordance with the legislation, be the same, confusingly similar to, or deceptively identical to the name of an already-existing company or LLP. Additionally, the firm name should not be such that using it would violate any laws or be undesirable in the eyes of the central government. The list of such undesirable names is included in Rule 8 of the Companies Incorporation Rules 2014 along with a list of words that must first receive Central Government clearance before being used in a company name.

In accordance with the Trademark Act, you must make sure that your business’ name, brand,
logo, or any other intellectual property is distinct from an already existing, pending, or registered
trademark. The goal of trademark registration is to prevent other brands from misusing the
owner’s intellectual property. Therefore, it is strongly advised that you make sure the name of your
business does not violate the intellectual property rights of other brands. It is advised to conduct
a public search of the government’s trademark database.

2. Incorrect company description

In the application form for company incorporation, a description of the company must be
included. It must include the name of the company, the type of business it does, its present
address, its distinctive brand, its target market, and, most importantly, its goal. Important
documents like the MoA, the AoA, the business strategy, and the policy are built upon the suitable
description of the firm that was chosen during its establishment. It will support your planning for the expansion and future success of the business after incorporation.

3. Incorrect Company Type

Public limited, private limited, or OPC are the three legal categories under which companies can
be registered. Startups that have received significant investment to conduct extensive commercial
activities with plans for development and expansion typically register as Public or Private Limited
corporations. For public limited businesses to be registered, there must be a minimum of 7
shareholders and 3 directors. They are consequently larger than private limited businesses, which
can operate with as little as two shareholders and two directors. Since there is no minimum or
maximum capital requirement, it is simpler for small businesses to start out as public or private
limited corporations before expanding quickly.

Another significant distinction is that a public limited business has the freedom to sell its shares to
anyone, distributing the cost of ownership over a large number of people. A private limited
corporation, on the other hand, offers restricted shares that it can only sell to its investors and
promoters.

4. Incorrect Supporting Documents

The required supporting documents must be uploaded to the online SPICe+ application form after
the company information has been entered in PART B. The applicant’s DSC must be used to sign
or attest all required paperwork. The PAN, a proof of identity, a proof of registered address for the
applicant director, and proof of registered office address are all required supporting documents
that must be submitted with the incorporation application to the ROC. If the office space is
rented, a lease and an owner’s no-objection certificate are needed. On the other hand, the
property paperwork and a No Objection Certificate from the business owner are necessary if the
office space is owned by the business owner. The company’s e-MoA and e-AoA, which were submitted using the INC 33 and INC 34 forms, respectively, must be submitted with the application.

5. The absence of founders/Shareholder’s agreement

One of the most important papers that must be created, approved, and signed by all of the
company’s owners is the shareholder agreement. It includes the shareholders’ names and
addresses, as well as information on share issuance, share allotment, share capital, lock-in time,
investment terms, provisions for share transfers, dividend declaration, dividend distribution,
ownership inheritance, nominee information, etc. The resolution of shareholder disputes might
become quite difficult in the absence of such a documented agreement. As a result, it is advised
for startup owners to create the Shareholder’s document at the time of business incorporation.

6. Not drafting and registering the written rental agreement

Business owners frequently forego the requirement to create a written leasing agreement with
their landlords in favour of verbally settling on the tenancy terms. As only a written and registered
agreement is admissible in a court of law, this sometimes gets them into problems when
disagreements occur.

The contract needs to be written on paper with a stamp on it and notarized by a notary. A request
must be made to the State Government’s sub-office registrar for registration. The information that
must be submitted includes the company’s name and address, the amount of rent that must be
paid, the frequency of that payment (annually or monthly), the length of the lease, whether it is
subject to renewal, the notice period, the amenities offered, etc.

7. Unnecessary appointment of Directors

A company’s directors do not necessarily need to be chosen from among all of the company’s
shareholders. A company’s board of directors needs to be a strong group made up of
shareholders, market analysts, lawyers, specialists in the sector, etc. The BoD must use its
knowledge, experience, and skill to make a number of important judgments. It’s possible that not
all of the company’s shareholders possess these abilities.

Additionally, the director of the company is accountable for overseeing the complete
administrative framework of the corporation. He is prone to making even the smallest errors,
which can sometimes bring the business to disaster. As a result, it is always a good idea for a
business owner to keep the ownership and the executive of the firm separate and to choose the
members of the Board of Directors and the Director of the company with the greatest care and
delicacy.

8. Not seeking professional help

The majority of new business owners are either unaware of the requirements they must fulfil
before starting their operations or choose not to because doing so would incur hefty professional
costs. However, they frequently are unaware that the fines levied for non-compliance are far
higher in cost than the fees assessed by experts. Additionally, if legal action is taken against your
company, that could result in its closure. So, in order to prevent such dire consequences for your
company, we advise hiring professionals and utilising their compliance services. You can also use
our services at GroomTax, where we specialise in giving all different types and sizes of enterprises
company registration and post-registration compliance services.

9. No thorough information on the local laws

The Union Ministry of Corporate Affairs is in charge of registering businesses, but many state
governments have additionally imposed requirements for compliance after incorporation. These
laws may not be the same in every state, but they always result in severe consequences for failure
to comply.

The Professional Tax Registration programme in India is the best illustration of state-specific
compliance. Companies must comply with a necessary requirement known as professional tax
registration within 30 days of their incorporation date. Certain state governments impose and
collect it. Directors, owners, and workers of the company are subject to the tax, which is
deducted from their salaries and income. Karnataka, Punjab, Bihar, West Bengal,
Andhra Pradesh, Uttar Pradesh, Telangana, Maharashtra, Gujarat, Assam, Kerala, Tamil Nadu, Meghalaya,
Odisha, Tripura, Madhya Pradesh, Jharkhand, and Sikkim are the only states in India where the
provision is applicable.

10. Incorrect Office Address

The address field on applications is frequently a source of confusion for applicants. The
application form requests two different types of addresses: the director of the company’s
personal address who will sign it and the address of the main office or headquarters where all
significant business operations will be conducted. The address information must be supported by
recent—not older than two months—proof of residency. The only acceptable forms of address
proof for the application are bills for energy, water, and telephone service.