
Want to start a business but confused between register a Company or run business without registering
For most of the people in India the perception is that it is a very big deal start your own company. Please note we have mentioned that it is a perception because approximately 27 lakhs companies were already registered in India till March 2024. Just imagine when 27 lakhs companies are registered why can’t your dream fly. You just need to start because one thing which is most important and present in all companies is that someone gave it a “START”.
While the business can be done even without registering a company, but you need to think is this a wise decision? Well, the answer is a BIG NO, because the risk that you carry in a business that is not registered is huge. On the other hand, when you register a company (be it One Person Company, Private Limited or a Public Limited Company) your liability is restricted to the capital employed in the company.
Here are the risks involved by running an unregistered business
1. Personal Liability:
The biggest risk that an unregistered businesses carry is the fact that owner’s personal assets being at risk. In simple words it means that if the business faces legal issues or financial losses/debts, Owner’s personal assets (like bank balance, house, jewellery etc.) will be used to settle the business liabilities.
2. Difficulty in raising capital:
Investor doesn’t feel safe in investing in unregistered businesses. As they find registered/incorporated companies are more professional and trustable. This causes significant challenge that unregistered businesses face today.
3. Slow growth & Scalability issues: Most unregistered businesses find it very difficult to grow after a certain level. This is mainly due to lack of resources & opportunities.
4. Ineligible for Government Contracts and Tenders: Many government contracts and tenders are only given to the businesses that are incorporated and who comply with provisions of the Companies Act, 2013
Why you should register your business
Here are some key reasons why you should incorporate your business in India:
Protection of Limited Liability: The incorporated company is a separate legal entity and being so, the shareholders of the company are generally not liable for the debts & obligations of the business in the personal capacity. In other words, the registered business protects the personal assets of the shareholders from being used to settle business debts/losses.
Legal Entity: By registering a company, you will be creating a separate legal entity. What it means is the company will have its own authority, obligations, rights, liabilities, separate from shareholder/owner. This protects the owner’s personal assets from company’s debts & liabilities.
Credibility: Registering a company helps build a reputation in the eyes of people who will be associate with the company in any manner be it customers, employees, vendors, bankers or investors. Each and everyone prefer dealing with registered company rather than un-registered businesses.
Access to funding: Registering a business open the doors for funding frombanks, private equity, venture capital and many government schemes. These institutions have norms that give advantage to registered companies to get fund. They understand that registered businesses have to be compliant to regulatory requirements and they usually follow professionalism in their transactions that gives sense of security to investors.
Perpetual existence: companies have perpetual existence i.e. the company can run for hundreds of years, of course with change in ownership time to time. This gives a bigger horizon to management & investors for long term planning and stability.
Tax benefit/ support from government: Many a times Governments runs program to support industries or corporates by reduced tax rates or grants etc. By registering a company, you may make yourself eligible if such benefits are available to corporates.
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