Complaints of repeated rejections of names and lack of a trusted master database are being voiced by lawyers, chartered accountants and entrepreneurs alike.
Despite the government giving a push to ease of doing business in India, entrepreneurs who are willing to set up start-ups in India are facing problems due to archaic and unnecessary laws and regulations which are making the process difficult and complex.
The Ministry of Corporate Affairs (MCA) and the Registrar of Companies (RoC) have still not been able to make the process easy and hassle free for entrepreneurs when it comes to registration of their new companies under the start-up push by the Narendra Modi government, as complaints of repeated rejections of names, lack of a trusted master database and mandatory multiple compliances even for new start-up companies are being voiced by lawyers, chartered accountants (CAs) and entrepreneurs alike.
Nikhil Sachdeva, an entrepreneur, has been wanting to set up a new company for the last one month, but his application for registering the name of his company has been rejected thrice by the RoC. “I had applied for registration of my company’s name thrice and all three times, the name that we had applied for was rejected with vague and unsubstantial reasons. For example, they raised objection to words like ‘Just’, ‘Democracy’ and ‘India’, while there are so many other companies that are functioning and have these words in their names. Moreover, every time we re-apply, we need to pay Rs 1,000 just to reserve the name of the company. So if I have to apply five times, I lose Rs 5,000 just to reserve the company name,” Sachdeva told this correspondent. Many have also raised questions about why the MCA does not put up names of all the companies registered in India in a single database easily accessible by all to decrease the chances of rejection. Neha Gupta, a practising CA from Delhi, told The Sunday Guardian, “This is a perennial problem with the MCA and RoC where they reject names of proposed companies on their whims and fancies. The rejection or approval is completely on the discretion of the RoC. We have even seen cases where names have been rejected more than seven times. Often, the grievances cell gives a very lackadaisical reply. Even at the registration process, we have witnessed cases were objections were raised multiple times due to very trivial issues. Most times, this delays the process of setting up of a company.”
Gupta further said that the claim made by the MCA that one can set up one’s company within one to two working days is somewhat misleading; they do not say how much time it takes to reserve a name for the company. Compliances also take a lot of time, including documentations, thereby negating the claim made by the Ministry, Gupta said.
Shrijay Seth, co-founder of legalwiz.in, said that the MCA in January this year had done away with the earlier form where a start-up would give a preference of six names in a single form to the RoC for registering their new company.
“The MCA has changed this rule and now one can only submit two names at a time for registration and if both the names are rejected, one has to apply once again. Every single application post the second application, requires a subsequent charge of Rs 1,000. This has indeed caused a lot of pain and ambiguity among entrepreneurs who are looking to set up a start-up. If hindrances are faced at the very stage of setting up of a company, it could demoralise the entrepreneur,” Seth said.
Compliances for start-ups have also not been reduced. “Every start-up has to go through detailed compliances of the MCA every year. This amounts to a lot of documentation. There are several unnecessary compliances which could be easily done away with for start-ups,” Seth said, adding that the MCA in January had decided to give permissions to set up new LLPs (Limited Liability Partnership) only if the willing directors/partners have a DIN (Director’s Identification Number).
“LLPs had been one of the most sought after forms of companies for start-ups as compliances were much lesser compared to a private limited company, but since the Ministry had brought out a notification in January this year, it is causing a lot of inconvenience to the start-up industry,” Seth said.