{"id":2583,"date":"2025-10-09T02:56:35","date_gmt":"2025-10-09T02:56:35","guid":{"rendered":"https:\/\/e-startup.io\/blogs\/?p=2583"},"modified":"2025-10-10T08:58:42","modified_gmt":"2025-10-10T08:58:42","slug":"common-mistakes-made-during-company-formation","status":"publish","type":"post","link":"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/","title":{"rendered":"Common mistakes startups make during company formation (and how to avoid them)"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#Common_mistakes_startups_make_during_company_formation_and_how_to_avoid_them\" >Common mistakes startups make during company formation (and how to avoid them)<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#1_Making_the_Wrong_Business_Structure\" >1. Making the Wrong Business Structure<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#2_Failure_to_define_Founders_roles_and_shareholding\" >2. Failure to define Founders roles and shareholding<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#3_Violation_of_Legal_Compliance_Once_Registered\" >3. Violation of Legal Compliance Once Registered<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#4_Business_Transactions_with_Personal_Bank_Accounts\" >4. Business Transactions with Personal Bank Accounts<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#5_Failure_to_Secure_Brand_Name_and_Logo\" >5. Failure to Secure Brand Name and Logo<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#6_Failure_to_take_the_necessary_licensing_or_GST\" >6. Failure to take the necessary licensing or GST<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#7_Lack_of_Accounting_and_Record_Keeping\" >7. Lack of Accounting and Record Keeping<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#8_Selecting_an_Inappropriate_State_or_City_to_Register\" >8. Selecting an Inappropriate State or City to Register<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#9_Failure_to_plan_for_Future_Investors\" >9. Failure to plan for Future Investors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#10_Lack_of_Professional_Help\" >10. Lack of Professional Help<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#Top_5_Company_Formation_Service_Providers_in_India\" >Top 5 Company Formation Service Providers in India.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#Additional_Tips\" >Additional Tips\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"Common_mistakes_startups_make_during_company_formation_and_how_to_avoid_them\"><\/span><b>Common mistakes startups make during company formation (and how to avoid them)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p><span style=\"font-weight: 400;\">A new business is a thrilling experience, although the process of forming a company can be strenuous, particularly when it is being done by a first-time founder. Most of the <\/span><a href=\"https:\/\/e-startup.io\/\"><span style=\"font-weight: 400;\">startups in the USA<\/span><\/a><span style=\"font-weight: 400;\"> do not take into consideration the legality and financial aspects and they are in a hurry to do the registration process. Even minor errors that occur during incorporation may cause future law suits, tax fines or even closure of the business.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0This article defines the most popular errors that have been made when establishing a company, the reasons they occur, and how they can be prevented easily.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"1_Making_the_Wrong_Business_Structure\"><\/span><b>1. Making the Wrong Business Structure<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it entails:<\/b><span style=\"font-weight: 400;\"> Before going to the place of registration, a lot of founders get themselves registered without knowing whether to form a Private Limited Company, or LLP, Partnership, or even OPC.<\/span><\/p>\n<p><b>\u00a0Why it is a bad idea:<\/b><span style=\"font-weight: 400;\"> The inappropriate framework may raise the taxation, decrease the possibilities of investments, or make the compliance process more complicated.<\/span><\/p>\n<p><b>\u00a0How to prevent: <\/b><span style=\"font-weight: 400;\">Seek the advice of a business consultant or CA. A Private Limited Company is most appropriate where the tech startups want investors.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"2_Failure_to_define_Founders_roles_and_shareholding\"><\/span><b>2. Failure to define Founders roles and shareholding<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>Interpretation: <\/b><span style=\"font-weight: 400;\">Co-founders usually do not have written agreements and trust each other orally.<\/span><\/p>\n<p><b>\u00a0Reasons it becomes wrong:<\/b><span style=\"font-weight: 400;\"> Partnerships can be ruined by disagreements over ownership, responsibilities or equity.<\/span><\/p>\n<p><b>\u00a0How to prevent: <\/b><span style=\"font-weight: 400;\">Prepare a Founders Agreement that is very precise on shareholding, right to decision making and exit provisions.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"3_Violation_of_Legal_Compliance_Once_Registered\"><\/span><b>3. Violation of Legal Compliance Once Registered<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>The meaning behind it:<\/b><span style=\"font-weight: 400;\"> A lot of startups believe that company formation is the last thing to do and it is not once.<\/span><\/p>\n<p><b>\u00a0Reasons why it is a bad idea:<\/b><span style=\"font-weight: 400;\"> Lack of annual filings, tax returns or ROC compliance may result in penalties or strike-off.<\/span><\/p>\n<p><b>\u00a0How to prevent it:<\/b><span style=\"font-weight: 400;\"> Maintain a compliance calendar or use a professional service to deal with filings.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"4_Business_Transactions_with_Personal_Bank_Accounts\"><\/span><b>4. Business Transactions with Personal Bank Accounts<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it entails:<\/b><span style=\"font-weight: 400;\"> There are start-ups where personal accounts are used as opposed to the opening of a business current account.<\/span><\/p>\n<p><b>\u00a0Reasons why it is a bad idea: <\/b><span style=\"font-weight: 400;\">It brings about confusion and accounting problems in the form of taxes.<\/span><\/p>\n<p><b>\u00a0How to avoid:<\/b><span style=\"font-weight: 400;\"> Open a separate current account as soon as it is registered to separate business finances.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"5_Failure_to_Secure_Brand_Name_and_Logo\"><\/span><b>5. Failure to Secure Brand Name and Logo<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it means:<\/b><span style=\"font-weight: 400;\"> Founders do not bother with trademark registration when they believe that nobody is going to copy their logo.<\/span><\/p>\n<p><b>\u00a0Why it is a mistake:<\/b><span style=\"font-weight: 400;\"> If there is no trademark then anybody can use your name or even register it ahead of you.<\/span><\/p>\n<p><b>\u00a0How to prevent: <\/b><span style=\"font-weight: 400;\">Have a Trademark Registration, immediately after securing company incorporation.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"6_Failure_to_take_the_necessary_licensing_or_GST\"><\/span><b>6. Failure to take the necessary licensing or GST<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it entails:<\/b><span style=\"font-weight: 400;\"> There are numerous businesses that are run without required registration such as GST, MSME and Shop and Establishment license.<\/span><\/p>\n<p><b>\u00a0Reasons why it is wrong: <\/b><span style=\"font-weight: 400;\">Non-compliance may attract fines or government benefits denial.<\/span><\/p>\n<p><b>\u00a0How to prevent:<\/b><span style=\"font-weight: 400;\"> Find out all the licenses which apply to your type of business at the start.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"7_Lack_of_Accounting_and_Record_Keeping\"><\/span><b>7. Lack of Accounting and Record Keeping<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it is:<\/b><span style=\"font-weight: 400;\"> There are startups that postpone the recording of their accounts to the end of the year.<\/span><\/p>\n<p><b>\u00a0Reasons why it is a mistake: <\/b><span style=\"font-weight: 400;\">It causes financial mismanagement and wrong reports.<\/span><\/p>\n<p><b>\u00a0How to prevent:<\/b><span style=\"font-weight: 400;\"> Keep monthly accounts and pay a CA or use accounting software at the very beginning.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"8_Selecting_an_Inappropriate_State_or_City_to_Register\"><\/span><b>8. Selecting an Inappropriate State or City to Register<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it is:<\/b><span style=\"font-weight: 400;\"> Sometimes, businesses are registered in a poor location without paying attention to the taxation or the operations.<\/span><\/p>\n<p><b>\u00a0Reasons why it is not a good idea:<\/b><span style=\"font-weight: 400;\"> It may add compliance cost or render banking a nightmare.<\/span><\/p>\n<p><b>\u00a0How to avoid: <\/b><span style=\"font-weight: 400;\">Register where you are carrying out your major business operations.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"9_Failure_to_plan_for_Future_Investors\"><\/span><b>9. Failure to plan for Future Investors<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>What it entails: <\/b><span style=\"font-weight: 400;\">There are those startups that are formed as an LLP or proprietorship but in future they require investors.<\/span><\/p>\n<p><b>\u00a0The reason why it is a mistake:<\/b><span style=\"font-weight: 400;\"> Privately limited companies are favored by investors, as they allow shareholders flexibility.<\/span><\/p>\n<p><b>\u00a0How to prevent: <\/b><span style=\"font-weight: 400;\">Be long-term oriented and adopt a structure that is fundraising supporting.<\/span><\/p>\n<h3><span class=\"ez-toc-section\" id=\"10_Lack_of_Professional_Help\"><\/span><b>10. Lack of Professional Help<\/b><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><b>Meaning: <\/b><span style=\"font-weight: 400;\">Attempting to register the company without the help of professionals.<\/span><\/p>\n<p><b>\u00a0The reason it is a mistake: <\/b><span style=\"font-weight: 400;\">Will result in documentation error or refusal by MCA (Ministry of Corporate Affairs).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u00a0<\/span><b>How to prevent it:<\/b><span style=\"font-weight: 400;\"> Use a professional incorporation service provider to deal with all the legal and effective work.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Top_5_Company_Formation_Service_Providers_in_India\"><\/span><b>Top 5 Company Formation Service Providers in India.<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>E-Startup India <\/b><span style=\"font-weight: 400;\">&#8211; Provides startups with cheap and quick company registration, GST, and compliance service.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>LegalRaasta<\/b><span style=\"font-weight: 400;\"> &#8211; Services small businesses with incorporation, GST, and tax registration.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>MyOnlineCA<\/b><span style=\"font-weight: 400;\"> &#8211; It offers online company registration and business compliance services to MSMEs.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>StartupYo<\/b><span style=\"font-weight: 400;\"> &#8211; Provides startup entrepreneurs with incorporation and startup documentation.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Registerkaro<\/b><span style=\"font-weight: 400;\"> &#8211; Company formation and legal compliance agency of Indian startups.<\/span><\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"Additional_Tips\"><\/span><b>Additional Tips\u00a0<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Never register without first checking the availability of the company name.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Develop a financial forecast of the business and a business plan to be used by future investors.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Always have electronic versions of all legal documents to have easy access.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Check your company compliance after every 6 months.<\/span><\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><b>Conclusion<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">In brief, startups are known to commit errors such as wrong structure, lack of compliance, or mixing personal and business funds. These mistakes can be time and money consuming in the future. With proper planning, documenting all aspects and professional assistance offered by reputable sites such as E-Startup India, you will easily register your business and create a good legal basis to develop.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Common mistakes startups make during company formation (and how to avoid them) A new business is a thrilling experience, although &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"Common mistakes startups make during company formation (and how to avoid them)\" class=\"read-more button\" href=\"https:\/\/e-startup.io\/blogs\/common-mistakes-made-during-company-formation\/#more-2583\" aria-label=\"Read more about Common mistakes startups make during company formation (and how to avoid them)\">Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":2584,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2583","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","resize-featured-image"],"_links":{"self":[{"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/posts\/2583","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/comments?post=2583"}],"version-history":[{"count":2,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/posts\/2583\/revisions"}],"predecessor-version":[{"id":2618,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/posts\/2583\/revisions\/2618"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/media\/2584"}],"wp:attachment":[{"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/media?parent=2583"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/categories?post=2583"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/e-startup.io\/blogs\/wp-json\/wp\/v2\/tags?post=2583"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}