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Incorporation of companies

Written by: Roohina Dua - I am a 4th year student of institute of law and management studies at gurgaon. I have great interest in commercial law
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In India, the following types of business entities are available:
Private Limited Co.
Public Limited Co.
Limited Liability Partnership (LLP)

Both the India and the foreign promoters can incorporate the following business entities.
• Public Limited Company,
• Private Limited Company,
• Limited Liability Company.
The foreign companies also have the options of forming the following type of business entities:
It is also obligatory for foreign investors or shareholders, both individuals and corporate shareholders, to seek Government Approvals for Investing in India. There are various steps required to establish a business in India, before and after incorporation, as mentioned hereinafter.

Private Limited Company

In case of the Private Limited Company
A Private Limited Company is a Company limited by shares in which there can be maximum 50 shareholders, no invitation can be made to the public for subscription of shares or debentures. The company cannot make or accept deposits from Public and there are restriction on the transfer of shares. 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 of such a Company can at times be unlimited. The minimum number of shareholders is 2.

A Company in India can have foreign directors provided some conditions are fulfilled. The directors of an Indian company, both Indian and foreigner directors, are required to obtain Director Identification Number - DIN and Digital Signature Certificate - DSC. There are some restrictions regarding issuing sweat equity for a company incorporated in India. Also see Annual Corporate Filings in India for corporate maintenance requirements in India.

Requirements for a Private Limited Company

1. A Registered Business Name: This must be followed by the word ‘Limited' or ‘Ltd'. Of six names in order of preference, indicative of the main objects of the company. It should be ensured that the name does not resemble the name of an existing company and also does not violate the provisions of The Emblems and Names (Prevention of Improper Use Act, 1950).

2. A Registered Office: This need not necessarily be the same address as the business is conducted from. Quite frequently the address used for the registered office is that of the firm's solicitor or accountant. This is the address, through, where all official correspondence will go.

3. Details of Directors (2 in case of private company and 3 in case of public company).

4. Shareholders: There must be a minimum of two shareholders (also described as `members' or `subscribers'). A private company can have up to fifty shareholders.

5. Share Capital: The company must be formed with a stated, nominal share capital divided into shares of fixed amounts. Small companies are frequently formed with a nominal share capital of Rs.100.

6. Memorandum of Association: The memorandum is the company's charter. It states the company's name; the situation of its registered office; its share capital; the fact that liability is limited and, most importantly, the object for which the company has been formed. The memorandum must be signed by at least three shareholders.

7. Articles of Association: The document contains the internal regulations of the company, the relationship of the company to its shareholders and the relationship between the individual shareholders. Many companies don't bother to draw up their own articles but adopt (sometimes with some modifications) articles set out in the Companies Act.

8. Certificate of Incorporation: This is the document, which the registrar of companies issues to you once he has approved your choice of name and your memorandum. When you receive this document your company legally exists and is ready to trade.

9. Auditors: Every company must appoint a qualified auditor. The auditor's duty is to report to the treasurer whether or not the books of the company have been properly kept, and that the balance sheet and profit and loss account presents

10. Accounts: The Companies Act lays down strict rules on accounting. Every company must maintain a set of records, which show the financial position at any one time with reasonable accuracy. The accounts comprise a profit and loss account and balance sheet with the auditors' and directors' reports appended. A new company's accounting reference period begins on its incorporation and runs until the following 31st March - unless the company notifies the registrar of companies otherwise. Within ten months of the end of an accounting reference period, an audited set of accounts must be laid before the shareholders at a general meeting and a set delivered to the registrar of companies.

11. Registers, etc.: In addition to the accounts books, companies are required to have: a register of members and share ledger; a register of directors and secretaries; a register of share transfers; a register of charges; a register of debenture holders; a book can be purchased to hold all of the above. This will be provided automatically if you buy a running concern.

12. Company Seal: All companies must have an engraved seal. This must be impressed on share certificates and must be used whenever the company has to execute a deed. Again, this is included in the ready-made company package.

Public Limited Company

Under sec – 3(1) (IV) of the companies Act – 1956 defines a Public Company.

A public company is defined as a company which is not a private company. The following conditions apply only to a public company: The public limited Company is one of a Company not limited by shares in which there can be unlimited shareholders, invitation can be made to the public for subscription of shares or debentures. The company can make or accept deposits from Public. However, the liability of a Director / Manager of such a Company can at times be unlimited A public company is required to have at least three directors. The minimum number of shareholders is 7. A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called "trading certificate". It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business. It must hold statutory meetings and obtain government approval for the appointment of the management.

A Company in India can have foreign directors provided some conditions are fulfilled. The directors of an Indian company, both Indian and foreigner directors, are required to obtain Director Identification Number - DIN and Digital Signature Certificate - DSC. There are some restrictions regarding issuing sweat equity for a company incorporated in India. Also see Annual Corporate Filings in India for corporate maintenance requirements in India.

The following documents are required to be executed (signed) before they are submitted to the ROC:

• 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.

• Form No. 1 - This is a declaration to be executed on a non-judicial stamp paper of INR 20 by one of the directors of the proposed company or other specified persons such as Attorneys or Advocates, etc. stating that all the requirements of the incorporation have been complied with.

• Form No. 18 - This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company.

• Form No. 29 - This is a consent obtained from all the proposed directors of the proposed company to act as directors of the proposed company. (Not required in case of private company).

• Form No. 32 - This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors.

• Name approval letter in original.

• Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.

• Power of Attorney in case of a subscriber who has appointed another person to sign the MOA on his behalf.9. Filing fees as may be applicable.

Also Read:
Steps to be Followed for the Incorporation of New Company In India:
The Companies Act, 2013 lay down the rule for the incorporation of both Public and Private Companies under Chapter-II of the act along with the [Rules] of the Companies (Incorporation) Rules, 2014.

The author can be reached at: roohinadua@legalserviceindia.com / Print This Article

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