Incorporation of Company in India(1)

Incorporation of Company in India

Under the existing Indian Rules & Regulations, a company can be a Private Limited Company or Public Limited Company or a One Person Company.

What is a Public Limited Company?

A Public Limited Company is a Company limited by shares. In this case, there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager/Officer of such a Company remains unlimited under certain circumstances. The minimum number of shareholders required is 7 (Seven).

Advantages of a Limited Company

  • Members’ (shareholders) financial liability confined to the amount of money they have not paid for shares subscribed/purchased by them.
  • Easy to appoint, retire or remove directors or any other officer of the company under the Companies Act, 2013.
  • The shareholders can contribute additional share capital or an unsecured loan for business requirement from time to time.
  • The death, bankruptcy or withdrawal of capital by one member does not affect the company’s ability to trade.
  • Easy to dispose of or part with whole or part of the business of the company without disturbing ongoing business.
  • Financial Institutions are more comfortable with corporate clients.
  • Corporate status.
  • Enjoying greater degree of confidence and trust by the public at large and Government Agencies.

Disadvantages of a Limited Company

  • Financial details of the company are publicly available on the Government website.
  • The competitor/revival can watch technical development of the company as the same is available in the public domain.
  • Regular and time-consuming compliances under various statutes especially applicable to public limited companies whether it is closely held or widely held company.
  • Heavy penalties for non-compliance or failure to comply timely.
  • The overall cost of maintaining the corporate structure is heavy.
  • Professional and legal advice is needed on day to day working.
  • The advantages of limited liability of the directors remain on the paper like the Financial Institutions and the Vendors invariably insist for personal guarantee before entering into any business commitment with the company..

What is a Private Limited Company?

Private Limited Company is the most common and popular format of legal entity in India. It can have minimum two and maximum of 200 (Two Hundred) shareholders. It cannot invite the public for subscription of its shares or debentures. Further, the shares of Private Limited Company are not freely transferable under the Companies Act, 2013. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager/Officer of such a Company remains unlimited under certain circumstances. The company need to have a minimum of two directors and can have a maximum of fifteen directors. One of the directors of the company must be an Indian Citizen and Indian Resident.

PROCEDURE FOR INCORPORATION OF PRIVATE LIMITED COMPANY

  • Acquire Digital Signature (DSC) of both the proposed directors and Promoters of the Company.
  • Acquire Director Identification Number (DIN) for the proposed directors and Promoter of the Company
  • Filing of application for registration of the company. There are two options available to the promoters as under:-

The company can be incorporated by using SPICE ROUTE. Under this procedure? Complete set of documents such as Memorandum & Articles of Association and various declarations as required under Companies Act are filed online in one go. The registrar after being satisfied about the name selection of the company and other documents filed by the promoters, can issue registration certificate instantly.   

However, there is inheritant risk of rejection of the application by the Registrar either on technical ground or on merit.

This process is little bit lengthy in term of time. However, the chances of rejection of application by the registrar are negligible. The procedure involved is as under:-

The promoters needs to first get the approval of the name of the proposed company from the Ministry of Corporate Affairs. It is called “Reserve Unique Name”(RUN).

On receipt of the name approval letter from the ROC, the incorporation documents like Memorandum of Association (MOA) & Articles of Association ( AOA), Form INC 9, Form INC 10 etc are required to be drafted. The MOA and AOA are charter documents of the company. Therefore, these documents should be drafted with due diligence and by a professional having in depth knowledge of the subject and Applicable Indian Rules & Regulations. The MOA states the main and incidental or ancillary objects of the proposed company. It also states the authorized share capital of the proposed company and the names of its promoters. The AOA contain the rules and procedures for the routine conduct of the proposed company. It also states the names of its first / permanent directors of the proposed Company if any.

The following documents are required to be executed (signed) before they are submitted to the Registrar for incorporation of the Company:-

MOA and AOA – These are required to be executed by the promoters in their own hand in the presence of a witness in quadruplicate stating their full name, father’s name, residential address, occupation, number of shares subscribed for, etc.

Other Incorporation Documents such as Form INC 8, Form INC 9, Form INC 10, Declaration by Directors, Form INC 22 Affidavit for non acceptance of Deposits, DIR 12, Power of Attorney etc

Once the documents as stated above, are properly signed by the promoters, the consultant responsible for incorporation of the company will witness the signature and address of the promoters. Further these documents needs to be notarized & legalized in case the documents has been signed outside India. Thereafter these documents will be submitted to the ROC for incorporation of the company alongwith requisite fee as prescribed under the Act.

The Registrar of Companies on being satisfied about the documents filed and contents thereof, will issue certificate of incorporation. The certificate so issued by the ROC is conclusive proof of incorporation of the company in India.

What is One Person Company?

One person Company ( OPC) is a legitimate way to form a company with only one member. OPC can work like Proprietorship but it holds the status of company and of course enjoys the benefits that comes with it ( limited liability, trust factor, least compliances etc, However, privilege of incorporation of OPC is available only to the Indian Residents.

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