Forming and Registering a Company in India



Forming and Registering a Company in India

Introduction-

Under Section 3 of Companies Act, 1956, a ‘company’ is defined as “a legal entity incorporated and registered under the Act”. Section 2(f) of Companies Act, 2013, defines ‘company’ as “a company incorporated under this Act or under any previous company law”. There can be three forms of a company under Section 3 of Companies Act, 2013Private Company and Public Company and One Person Company. Among the three, One Person Company is the latest one. One Person Company is a company which has a single member only and is considered a private company for all lawful purposes under Section 3 of Companies Act, 2013.[1] Section 3(2) of Companies Act, 2013 further sub-divides a company into: (i) a company limited by shares, (ii) a company limited by guarantee and (iii) an unlimited company.Companies Act, 2013 and Companies (Incorporation) Rules, 2014 are the two legislations on point.

Procedure for incorporation of a company-

  1. Step1: Selecting the name of its Board of Directors: The first step for incorporation of a company is to select the name of its Board of Directors. According to Section 149 (1) (a) of the Indian Companies Act, 2013, there must be at least two in case of Private Limited Company and three in case of a Public Limited Company. Section 149 (1) (b) of the Indian Companies Act, 2013 restricts the maximum name of the Board of Directors to 15, whether it is a public limited company or a private limited company.
  1. Step2: Apply for Digital Signature Certificate (DSC): DSC is a certificate issued by a licensed Certifying Authority (CA) serving as a proof of identity for a certain purpose. It is also helpful for obtaining access to information and certain documents.It can beregisteredby signing MCA-21 E-forms digitally.
  1. Step 3: Apply for Director Identification Number (DIN): DIN is a unique identification number allotted to every Director.According to Section 152(3) of the Indian Companies Act, 2013, it is only after that DIN is allotted toa person, he can be appointed as a Director. For this, a person needs to apply to the Central Government (Section 153 ofthe Indian Companies Act, 2013). Section 154 of the Indian Companies Act, 2013 requires the Central Government to allot DIN to the applicant within one month of its date of application.
  1. Step 4: Filing an application of Registrar of Companies (ROC) for approval of the name-Section 4(4) of the Indian Companies Act, 2013 requires a person to file an application with the ROC for reservation of the name, whether it is the name of the proposed company ora name in place of the existing one. On receipt of the application along with the requisite documents, the ROC can reserve the name for a period of sixty days under Section 4(5) of the Indian Companies Act, 2013. The form which has to be submitted to the ROC is called Form No INC.1 (Rule 9 of the Companies Incorporation Rules, 2014).Also, the proposed name must not be in breach of the Emblems and Names (Prevention of Improper Use) Act, 1950.
  1. Drafting of the Memorandum of Association (MoA): MoA is the constitution of the company.It includesname of the company, state in which the registered office of the company is to be situated, object of the company, liabilities of the members of the company and the amount of share capital. Section 4(6) of the Indian Companies Act, 2013 requires the memorandum of a company to be in respective forms as specified in Tables A, B, C, D and Ein Schedule I as may be applicable to such company.
  1. Drafting of the Articles of Association (AoA): AoA relates to the regulation for internal management of the company. According to Section 5(6) of the Indian Companies Act, 2013, the AoA shall be in respective form provided in Table F, G, H, I and J of Schedule-I as may be applicable to such company.
  1. Application for the incorporation of company: According to Section 7 of the Indian Companies Act, 2013, the said application shall be filed with the registrar within whose jurisdiction the registered office of a company is proposed to be situated. Under Rule No.12 of Companies (Incorporation) Rules, 2014, Form No.INC.2 and Form no. INC.7 along with the requisite fees shall be filed for a One Person Company and a Non-One Person Company respectively. The ROC on receipt of the requisite documents shall issue the Certificate of the Incorporation.
  1. Commencement of business: A private company can start the business after receiving the certificate of incorporation but a public company needs to wait for the certificate of commencement of business before it starts the business. According to Section 11 of the Indian Companies Act, 2013, a company having a share capital shall not commence any business unless the Director files a Declaration with Registrar in Form No. INC.21 (Rule 24of Companies (Incorporation) Rules, 2014)declaring that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him and the paid up capital is not less than 5 Lakh Rupees in case of Public Company and not less than One Lakh in case of Private Company.[2] The RoC then calls up the promoters to make necessary changes in AoA and MoA and subsequently, on completion of the necessary changes issues the certificate of commencement of business.

Incorporation of a company can be denied if the RoC does not approve the proposed name. Some of the grounds for rejection of a name are-

  1. Under Rule 8(2) (b) (ii) of the Companies (Incorporation) Rules, 2014, the object of the name should be in consonance with the object set out in the memorandum. Therefore, the Name is not allowed if it is not in consonance with theprincipal objects of the company as set out in the memorandumof association.
  2. Under Rule 8(2)(a) of the Companies (Incorporation) Rules, 2014, if a name is considered ‘undesirable’the RoC rejects the proposed name. Some of the grounds constituting undesirability are :
    • The name is only a general one like Cotton Textiles Mills Ltd.
    • The name contains the word ‘British India’.
    • It resembles closely the popular or abbreviated description ofan existing company or limited liability partnership.
    • The proposed name is vague or an abbreviated name suchas ‘ABC limited’.

Example:

A, B and C (promoters) are friends and want to start a business of manufacturing cricket bats. They want to start a public company named as “Haydos and Clarkey Bats Ltd.” Mr X, Mr Y and Mr Z, reputed cricketers, are chosen as the Board of Directors.After consulting the authorities, they log into the Ministry of Corporate Affair’s website and sign MCA-21 E-forms. Eventually they get a DSC which would serve as their identity proof. After obtaining the DSC, they apply for the DIN to the Central Government. After twenty days of the application, they get their DIN’s “23435CDF”, “23436CDF” and “23437CDF”. After this, they apply to RoC located at Delhi for approval of the company name. The RoC reserves the name for a period of sixty days, in between which RoC checks that whether the proposed name breaches Emblems and Names (Prevention of Improper Use) Act, 1950or not. The promoter then drafts the MoA and AoA including all the necessary particulars.Eventually, the promoters file an application along with the Form No. INC.21, with the RoC situated at Delhi containing a declaration that the minimum paid up capital of “Haydos and Clarkey Bats Ltd” is Rs. 5 lakh. Finally, the RoC issues a Certificate of Commencement of Business to “Haydos and Clarkey Bats Ltd.”

It is important to note that RoC is an office under Ministry of Corporate Affairs responsible for administration of companies and LLPs in India. The RoC authenticates the documents like MoA, AoA etc. and includes the name of the company in the register of companies. He is responsible for releasing the certificate of incorporation and certificate of commencement of business on meeting the necessary requirements.

 Conclusion-

In the latest report released by the World Bank titled as “Ease of Doing Business Index”, India has notched up to the 100th position.[3] Even though, there has been an improvement in the ranking of India, there remain a lot of areas in which improvement is required. The following figures point out the position of India: There are 12 procedures to complete in the initial set up of a business costing 49.8% of income per capita, it takes 27 days to complete the tasks on average, it takes 4.3 years to resolve insolvency in India,it takes on an average of 1,420 days to enforce a contract in India and other problems relating to obtaining different permits.[4]Even though, GST has been a revolutionary step in the indirect taxation regime of the country there remains a lot to be done for improving ease of doing business in India. 

[1]India: One Person Company- A Concept For New Age BusinessOwnership.http://www.mondaq.com/india/x/278154/Corporate+Commercial+Law/One+Person+Company+A+Concept+For+New+Age+Business+Ownership.html

[2]Steps To Be Followed For The Incorporation Of New Company In India. http://www.legalservicesindia.com/article/article/steps-to-be-followed-for-the-incorporation-of-company-in-india-1889-1.html

[3] India has to run fast to further improve ease of doing business ranking: World Bank CEO. https://economictimes.indiatimes.com/opinion/interviews/india-has-to-run-fast-to-further-improve-ease-of-doing-business-ranking-world-bank-ceo/articleshow/61522916.cms

[4]Top 10 challenges of doing business in India. https://www.tmf-group.com/en/news-insights/business-culture/top-challenges-india.html

(Disclaimer: The information provided in this article is given only to provide helpful information and understanding on the subject/topic of law discussed. The contents of this article are not the views of Amie Legal and Amie Legal does not take any responsibility or liability for the opinions expressed by the Author herein.)

The Companies Act 2013

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