7 Company Formation Myths Debunked

If you are planning to form your own company in the near future, it is wise to research the different challenges you may encounter beforehand. However, the truth is that there are many myths associated with the company formation process. Such myths aren’t just untrue, they also discourage those with big ideas and determination from achieving their full potential. 

In this article, we will look at 7 common myths about company formation and why they are untrue.

Forming a business is expensive

If you have ever worked for a sizable company before, you may already be familiar with the different costs these establishments must bear. There are fixed costs associated with acquiring office space and setting up equipment. There are also variable costs associated with operating the company and ensuring you are conducting activities as needed. 

The above costs can be quite high when put together. This leads many to believe that forming a business is expensive. However, this may not always be the case.

The process of incorporating or registering a company is actually quite affordable. In most cases, it is possible to incorporate a business for under €1000 in the UK and USA. Completing the paperwork and associated procedures also costs far less than this amount.

It is also possible to acquire a “shelf company” for less than this amount in the UK and USA. These are essentially ready-made companies that have already been formed but were never traded. Such companies have already paid for incorporation costs. This makes them an affordable option for those that wish to form a company, but without bearing such costs.

If you intend to set up a business in the EU, you may need to pay more than €1000. However, such costs are relatively minor when compared with other set-up costs such as space rental deposits and equipment purchases.

Forming a company is time-consuming

Famous CEOs and entrepreneurs frequently talk about how long it took them to get their company off the ground. Such individuals spend many years coming up with winning product and service ideas and even longer attracting investors. The good news is that none of these tasks is necessary for the actual company formation process

That isn’t to say that you can form a company overnight. However, once you understand the company formation procedure in your specific country or state, it can be completed in as little as 72 hours. The trick is to leave the research and heavy-lifting to a qualified expert.

For example, you can hire a Company Formation specialist to provide professional advice and offer support during the formation process. These professionals are familiar with the ins and outs of company formation and understand methods to get it done as quickly as possible.

You need to be familiar with business and tax laws to form a company

Forming a business in a specific country or state requires you to follow certain business and tax laws. Such laws ensure that the company operates in compliance with different regulations and that its activities are being recorded or monitored by a government body. This may lead you to believe that you need to be familiar with various business and tax laws to form a company. However, this isn’t always true.

When forming a company, you may need to research different laws to ensure you are on track with completing the process legally. However, you don’t need to know every single law to do this. After all, researching various laws can be a time-consuming process. In addition to this, you may have trouble reading and understanding the fine details of such laws if you do not possess a professional background in such areas.

The good news is that there are plenty of ways to form a company without possessing knowledge of business and tax laws. One strategy is to hire a professional that is already familiar with these laws. An even better strategy is to find a company formation specialist with a team of accountants and lawyers in the country or state you wish to incorporate or form your business in.

By following the above strategies, you can ensure your new business is in compliance with local laws. Business and tax laws may be complicated, but they don’t necessarily need to be your problem. 

You can get penalised for filing incorrectly

Many people assume that you can be penalised for filing your business formation incorrectly. However, this does not generally occur. The reason for this is that most countries and states would like to encourage their residents to open new businesses. Arresting business owners for making a mistake during the filing process discourages them from creating entities that benefit the economy.

If you would like to be extra careful during the business formation process, it may help to hire a company formation specialist who can do this for you. These specialists can run through a checklist of items and ensure the filing process is completed correctly and according to the country or state requirements.

It is illegal to use shelf companies

As mentioned earlier, shelf companies are companies that haven’t conducted activities for a long period of time. Such companies are often sold off to prospective business owners and entrepreneurs who would like to bypass the lengthy and often complex business formation process. Shelf companies also offer credibility in front of potential investors due to their corporate history.

Some people assume that using a shelf company is illegal because the original company was not founded by its present owner. However, this practice is completely legal because the company was created using legal methods.

Prospective business owners and entrepreneurs can reap all the benefits of a shelf company as long as it is acquired legally. You can also hire a professional company formation expert to ensure the acquisition process is completed in accordance with local laws.

Company registration must be renewed each year

Many people believe that company registration must be renewed each year, similar to how an operating license must be renewed regularly. However, this is untrue, as you will need to register your company only once. This registration is valid for an unlimited period, or until the company winds up their activities.

The registration process can be complex and time-consuming, so many countries have chosen to make this a one-time activity for business owners. However, this also means it is vital to ensure the initial registration process is completed properly. 

Prospective business owners and entrepreneurs should seek the assistance of a professional who understands company registration to ensure this process is completed in accordance with local laws. Company registration is the foundation on which your business will be built, so it is vital to get it right before starting operations.

Anyone can be appointed a company director

A company director plays a vital role in managing daily activities as well as company finances. These individuals are usually chosen by the company’s shareholders and tend to be people with prior managerial experience. However, this doesn’t mean that anyone can be appointed as a company director.

A company director must be at least 16 years of age. They must also not be disqualified from holding a director position. This means you have the freedom to select just about any director as long as they meet a few core requirements set by the country or state.

Final thoughts

As you can see, there are plenty of untrue myths associated with company formation. Much of these myths possess some element of truth. However, it is always possible to work around the various hurdles of company formation by seeking help from a company formation specialist.

At Open European Company, we help business owners and entrepreneurs set up subsidiaries, branches, and stand-alone companies in the UK, USA, Europe, Hong Kong and multiple coutries. Please get in touch with us to learn more about how we can help you with company formation.