Virtual Office Company Registration: Risky?

Company is at Risk in Virtual office

Usually, to start a company, just the NOC and utility bill are enough as proof of an office space. Many of you thought that taking a virtual office with a small rent would be sufficient to test your business idea. However, your idea of using virtual offices for company registration is risky. Recent disciplinary actions by the MCA and CA Institue serve as a warning for businesses and professionals.

case of Professional Misconduct

In a recent case, one of the fellow CAs faced severe penalties and was barred from practice for certifying a company’s incorporation documents without personally visiting the registered office and verifying the place. The Chinese-associated company had registered at a virtual office offering limited services like call forwarding and mail handling. (ref: ICAI disciplinaryPR/G/309/2022/DD/221/2022/DC/1676/2022)

This type of virtual office arrangement failed to meet the Companies Act, 2013 requirements for a registered office, which says as below:

• A physical office capable of receiving official communications.
• Proper display of the company’s name and Corporate Identification Number (CIN).
• Name Board in the Local as well English as per State notification

The consequences?

• A fine of ₹20,000 and a 60 day suspension from the Institute to the CA.
• Reputational damage for the professional involved.
• From the MCA side, the penalty to the Company Rs.1 Lac, and Rs.1 Lac to each director

Virtual Office Trouble

Many virtual office setups typically provide facilities like:

• Name display and call/mail forwarding as required for company registration requirement
• Package forwarding against a fee to facilitate it as an office.
• they provide documents which are required for Company Registration

While convenient, these do not meet the MCA registered office rule. Non-compliance can lead to:

1. Penalties: Companies face fines of up to ₹1,00,000, with directors liable for the same amount individually.
2. Legal Notices: Registrars can initiate physical verification, and non-compliance can result in the company being struck off.
3. Loss of Credibility: Virtual setups can undermine trust among investors, clients, and regulators.

Alert to CA,CS at Certify office Place

Practising Chartered Accountants, Company Secretaries, and Cost Accountants must exercise care when certifying company registration documents like Spice form Inc 22 etc.

Why is this important now?

1. Fraudulent Activities: Many dummy companies and foreign entities (e.g., Chinese-controlled) have misused the present MCA system by registering with fraudulent basic documents and Aadhaar/PAN details of common individuals like students, sweepers, laborers etc. These companies are often used for:
   • Black money conversion from Indian Banks to overseas
   • Hawala transactions.
   • Public fund siphoning.
   • Illegal money transferring from India to overseas
2. Legal Accountability: Professionals when certifying without proper place visit verification risk:
   • • Prosecution and penalties as per the respective Institutes.
     • Damage to their professional career.

How to Stay Safe?

• Conduct mandatory place verification of the company registered office. If you’re staying out of the city limit, then don’t take those registration assignments, even Video calls or depending on the 3^rd party team for verification are insufficient.
• Verify the authenticity of documents, including the ID proof of directors, and subscribers, make a call with Aadar mobile number provided and explain to them about the Company setup and their role.
• Maintain detailed records of the verification process including internal checks, office photos, rental agreements, declarations, etc.

Quickstep for Virtual Office businesses

If your company is in a virtual office, act quickly before Roc notices to avoid penalties:

1. Transfer to a Proper Office now

Move to a proper physical space that enables as per Companies Act requirements.

2. File INC-22 in Mca

Update your registered office address with the Ministry of Corporate Affairs (MCA) by using Inc-22.

3. Update Nameboard and Documentation

• Ensure your office name board and CIN in English and Kannada (for Karnataka).
• Update all your business letterheads, visiting cards, and all communications with CIN.
• Terminate the agreement with the virtual office and take the refund if any

4. Regular Company Audit

Schedule periodic audits to ensure continued office compliance with legal requirements.

Why Proper Office Setup Matters

An office setup is not just about avoiding penalties. It also:

• It Builds Credibility among clients, investors, and regulators.
• It Supports Growth and it supports better operations and customer interactions.
• It Avoids Legal Hassles and prevents future disruptions from RoC penalties.
• It creates a Brand for your business, creates identity, and makes a Brand with a logo.

How we help the Company office place update?

We easily handle challenges, we provide:

• Proper suggestions on transitioning from virtual to physical offices.
• We help you file INC-22 in Mca and update company office records.
• We support Company audits to keep your business on track.

Take Action Now for office change

Saving a small amount of rental expenses through holding virtual offices may be a good strategy in the short term but it creates lot of risks in the long run. All Directors must act now to transition to proper setups, and CS office must perform their duties professionally to safeguard their reputations.

For corporate advice and support, contact Prakasha & Co., a trusted Legal and tax advisory service. Stay compliant, stay credible.