Incorporation of Companies in India: Concepts and Incorporation Procedure

By | April 2, 2021
Incorporation of Companies in India

This article deals with the concept and procedure of incorporation of Companies in India.

I. Introduction

A Company is an association of many people who contribute money or monies worth to common stock and employed in some trade or business and who share the profit and loss arising the form. the common stock so contributed is denoted in money and is capital of the Company. The person who contributes to it or to whom it pertains are members. The shares are always transferable although the right to transfer is often more or less restricted.

Characteristics of a Company

A company, being a legal person, is capable of owning, enjoying, and disposing of property in its own name.

1. Artificial person

A company is an artificial person created under the law. It does not come into existence through a natural process. It has no physical body, no soul, and no conscience. But, it is not a fictitious person. It is a real person and exists only in contemplation of law. It is clothed with a legal personality. It has almost the same rights and powers as a person.

2. Separate legal entity

A company is a separate and distinct legal entity from its subscribers or members or directors. It has its own legal existence independent of its members. It has its own name. it can enter into a contract and sue and be sued by its members as well as outsiders it can acquire assets or open a bank account in its own name.

3. Perpetual succession

A company is a legal entity with perpetual succession. It never dies. Business Law creates it and law alone can dissolve it. Its existence is even not affected by lunacy.

4. Common seal

Every company is required by law to have a common seal. The name of the company is engraved on it. When this seal is affixed in the manner prescribed by the articles of the company and the authorized person sign on any document it is usually presumed to be an authenticated one and legally binding on the company.

5. Registered voluntary association

A company is a voluntary association of persons registered or incorporated under the companies act. It comes into existence only when a group of persons gets it registered under the companies act. On registration, the companies become a body corporate by the name with which it is registered.

6. Members

For registration of company minimum members of persons are required. At least seven persons in case of OPC are required. The person who agrees to form a company is required to sign the memorandum of the company. Such signatories are called the subscribers to the memorandum. On registration of the company, they are known as the first member of the company.

7. Share capital

The company may be registered with or without share capital. Even the companies with share capital are no more mandatorily. Required to have a minimum paid-up capital. Now the companies with a share capital may be incorporated with any amount of paid-in share capital. As amended by the company’s share capital of an OPC cannot exceed.

8. Transferable shares

The fully paid-up shares in a public company are freely transferable subject to a condition prescribed in its articles. The shares are movable property or goods, however, a private company has to restrict the right to transfer its shares by its articles.

Incorporation of Companies in India

II. Public Company

A public limited company is a voluntary association of members that are incorporated and, therefore has a separate legal existence, and the liability of whose members is limited. Public limited companies are listed on the stock exchange where it’s share/stocks are traded publicly. A public company is a company that issued securities through initial public offering and has an operation of securities at least one stock exchange or over the counter market.

Public companies are publicly traded within the open market and a variety of investors. In Public offering, every kind of investor has opportunities to buy the shares of the company.

Features of a Public Company

  1. Number Of Members
    According to the Companies Act of, 2013, the minimum number of members to start a company is 7 and there is no restriction for the maximum number of partners.
  2. Number Of Directors
    The minimum of directors is required in a public company is three and the maximum numbers of directors are 15 fifteen.
  3. Limited Liability
    Every partner has limited liability in a public company. if the company suffers from losses the partners do not need to sell their personal assets.
  4. Prospectus
    The prospectus is a detailed statement of the company affairs which is issued by a company for its public.
    As defined under section 2(71) of the Companies Act,2013companies which are not private companies are public companies” A public company must have at least 7 members, 3 directors, and a minimum paid-up capital of Rs. 5 lakh for its Incorporation. A Public company has an inherent right to transfer the share and debentures to the public and large.

Incorporating a Public Company

The incorporation procedure of a Public Company is given in Companies Incorporation (Rules), 2014.

Procedure for Incorporation

1. Application for name Availability

E-Form INC 1 to be filed with the registrar along with the following documents-

  • Proof of significance of rules wherever applicable.
  • Proof of registered trademark or approval of the owner of a registered tra44demark.
  • Copy of approval of central government approval; in case required
  • Proof of relation and No Objection Certificate (“NOC”) required in case the name includes names of relations.
  • Approval of concerned regulator
  • NOC from the existing Company
  • Copy of Affidavit in case proposed name includes phrase electoral trust
  • Board Resolution of promoter body corporate(s), in case promoter, is a body corporate
  • Memorandum of Association (“MOA”) and Article of Association (“AOA”) to be drafted as per Sections 4 & 5 of the Companies Act,2013

2. Application for Incorporation and Registration

E-Form No. INC 7 to be filed with the registrar of companies (“ROC”) in the jurisdiction where the company is to be incorporated along with prescribed fees and the following documents-

  • MOA signed by each subscriber to the MOA.
  • Declaration in E Form No. INC 8 by (Chartered Accountant, Advocate, Company Secretary, Auditor) that all compliances incidental to registration have been complied with.
  • Affidavit from the subscribers and members of the company and the directors stating that they were not convicted of any offense, was not guilty of fraud, misfeasance in the previous 5 years in E Form No. INC 9.
  • NOC in case of change in promoters.
  • E-Form No. INC 10 containing the specimen signatures and self-attested photograph of the promoters and directors.
  • Address for correspondence till registered office is Established.

Further documents to be Submitted

  • Form No. DIR 12 containing details of Director, identity, correspondence address, nationality, Directors Identification Number.
  • E-Form No. INC 22, containing verification of registered office to be filed within 30 days after the company is incorporated, i.e. the registrar gives the Corporate Identity Number(CIN). The documents attached along with E-Form no. INC 22 are-
  1. Registered document of the title of the premises of the registered office in the name of the company or Notarized copy of the rent or lease agreement in the name of the company along with 1-month-old paid receipt of the rent.
  2. Authorization from the owner or authorized occupant of the premises to use the premises by the company.
  3. Proof of usage of premises, copy of utility bills, example (electricity bills, telephone bills) depicting the address of the premises.
  4. List of all companies having the same registered office address.

III. Private Company

Private companies are defined under section 2(68) of the companies act as a “Company which is not a public company is a private company.” According to Section 3 (1) of the Companies Act, 2019, an organization can be formed by:

  • seven or more people, if the company has to be a public company.
  • Two or more people, if the company has to be a private company;
    or one person, if the company has to be One Person Company, that is to say, a privately owned company,

Incorporating a Private Company

Procedure for Incorporation

  •  Obtain Digital Signatures
    In order to continue with the registration process, it is important to obtain a digital signature certificate or DSC from a government-recognized certifying agency. At the time of filing the forms relating to company creation, a digital signature is required. All the forms require a valid digital signature because the registration process is online.
    A Class 2 or Class 3 Digital Signature Certificate or a DSC must be obtained. If the person seeking the incorporation is already pre-verified, it is possible to substantiate his/her identity against the pre-verified database. These verification cases will fall under the category of Class 2 of the DSC. On the other hand, if the person is not pre-verified, he/she must appear to authenticate his/her identity before a registration authority. In this situation, the individual will fall under the Class 3 category of DSC.
  • Obtain Director Identification Number (DIN)
    It is compulsory to obtain the Director Identification Number or the DIN for a person who wants to be the company director. There are 2 ways by which it is possible to obtain a DIN. They are the following:
    a. Filing SPICe: At the time of filing the SPICe form (SPICe/ INC 32), each of the proposed directors is given a Director Identification Number DIN . The DIN would be given to managers not holding a DIN. Under this phase, however, the issuance of DIN is limited to 3 directors.
    b. Filing Type DIN 3: This is an alternative open to existing businesses. The proposed director is required to provide his/her basic details along with identification proof such as an Aadhaar Card or PAN card and address proof in order to file the DIN 3 form.
  • Name of the Company-
    For the company, a name must be chosen. Naming the company is the symbol of its individual life. Any appropriate company name can be selected by the applicant, provided that the following points are honored :
    a. The company can not be registered with a name that according to the opinion of the Central Government, is undesirable.
    b. In the event that the liability of the members is limited, the business name must end with the term ‘Limited’.
    c. The company’s name must end with ‘Private Limited’ if it is a private company.
    d. The name chosen for the company does not imitate the name of another company that is licensed.
    e. The name chosen for the company should not be similar to the name of another company that is registered.
  •  Verification of availability of Names
    It is necessary to verify the availability of the name After a name has been determined, the applicant must obtain the approval of the name through one of the following options:
    a. Using Reserve Unique Name (RUN) to incorporate a company: The Reserve Unique Name web service, popularly known as the RUN web service, has been created by the Ministry of Corporate Affairs (MCA) for the purpose of incorporating a company. You need a Ministry of Corporate Affairs (MCA) account to use the RUN web service. Earlier RUN only gave one chance to apply for a name for incorporation. In the event of a denial, there were no second chances. However, with effect from 23 March 2018, the Ministry has approved the submission of two names and one re-submission (RSUB) for the reservation of a name under RUN. However, it is advisable to obey the instructions in a minute when choosing a name in order to prevent the refusal of the name.
    b. Using the type SPICe (INC-32) to incorporate a company: this is a cheaper and comparatively better choice for the incorporation of a company. Applying the form SPICe or INC-32 requires the applicant to re-file the same form in the event of a denial. That, too with no additional costs. In addition, if the name is also rejected in a second chance, the applicant can choose to file a new form. It is therefore a cheaper and more convenient name choice.
  •  Form SPICe or INC-32 must be completed
    Form SPICe or INC-32 has been implemented by the Ministry of Corporate Affairs as a simple form of electronic incorporation of the business. A single application can serve the following purposes:
    a. Request for assignment of Director Identification Number or DIN
    b. Reservation of business name
    c. Incorporation of a new business
    d. Apply to PAN and TAN
  •  E-MoA (INC-33) and e-AoA (INC-34) must be completed:
    The e-MoA and e-AoA forms must be completed next. e-MoA stands for electronic Memorandum of Association and e-AoA stands for electronic papers of association. The e-MoA shall be responsible for representing the charter of the company. On the other hand, it is the duty of the e-AoA to contain the internal rules and regulations of the organization. Both forms are expected to be digitally signed by the subscribers to the Memorandum of Association.
  • Application for TAN and PAN

An application for PAN and TAN As mentioned above, an application for a Personal Account Number or PAN and a Tax Deduction and Collection Account Number or TAN can also be made using the SPICe form (or INC- 32). Form 49A is to be filed for PAN under the SPICe form, while Form 49B is to be filed for TAN. These forms will be created automatically by the system once the SPICe form has been submitted.

V. One Person Company

Company of one person: a company founded as a member by a single person, unlike the normal way of having at least two people as members. Sec. 2(62) of the Company Act 2013 states that with only one Director and one member, a company may be created. It is a form of business where the standards for enforcement are lower than those of a private corporation.
The first step is to receive the Digital Signature Certificate to add an OPC (DSC), Of the proposed Director and then request the Identification Number of the Director (DIN).

The step is to obtain the company name approved by the MCA, after which certain documents must be submitted for incorporation to the Roc. The Roc may issue a Certificate of Incorporation to the OPC upon verification of the documents and forms filed with the MCA

V. Conclusion

In India, there are many forms of companies that function like Joint Venture Companies, Foreign Subsidiaries, Franchise companies, etc., However, the basic procedure of the incorporation of companies in India remains the same and the regulations are equally applicable to all companies functioning in India.


References

  1. Akarsh Bala, How to Incorporate a Company in India, QuickCompany, Available Here
  2. Incorporation of a Company in India, Legal Services India, Available Here
  3. Steps To Be Taken To Incorporate A New Company, MCA, Available Here
  4. CS Mohit Parashar, Private Limited Company Incorporation Process via SPICe+ & FAQs, TaxGuru, Available Here

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