How to start company in India?

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Companies Act

Companies in India are governed under the Companies Act, 2013. The term company has been defined under Section 2 (20) of the Act which defines company as any company that has been incorporated under the Act or under the previous Companies Act. Though the Companies Act does not prescribe any essentials for a company, it has been presumed that the following are essential elements in a company.

Essential features of Company:

a. A company is a voluntary association formed by a group of individuals for a common purpose.[1]

b. A company is a separate legal entity. It acquires the status of a legal personality once it has been registered. In India, this principle was first incorporated in the Kondoli Tea Co. Ltd[2]

c. Company gains perpetual succession on its registration. The company continues to exist and renders its functions even if the members of the company die. The insolvency of the members does not in any way; affect the existence of the company.

d. The main feature of the company is the limited liability which varies from one company to another.

  • In case of company that is limited by guarantee, the liability is determined based on the extent of the amount to which guarantee has been given and the liability arises only when the company undergoes liquidation process.
  • In case of the limited liability company, the shareholders can be held liable only to extent of the nominal share. They cannot be asked to pay more than what they contributed to the company.[3]

e. Company acquires the status of artificial legal person and it operates under common seal.

Incorporation of a company:

A company is said to have established when the incorporation process has been carried out in a proper manner as stated out under the Act. Section 7 of the Act provides the list of documents and information that are necessary for a company to be incorporated.

  • The Memorandum of Association (MOA) and Articles of Association (AOA) that are duly signed by the all the subscribers to such Memorandum.
  • The affidavit duly signed by all the subscribers and the first director that they had not committed any offence relating to the formation, promotion and management of the company or any such company for the case and has not committed any fraud, misfeasance or breach of duty that can be punishable under this Act or the previous companies Act.
  • Copy of the Agreement, if any which the company proposes to enter into with any individual for his appointment as managing or whole time director or manager
  • The address of the correspondence till its registered office is established.
  • Proof of identity of the subscribers and first directors
  • Particulars of the interest of the persons mentioned in the AOA as the First Directors of the Company in other firms or bodies corporate along with their consent to act as Director of this company.
  • A declaration that all the requirements of the Act are compiled with.[4]

Capital investment:

In order to incorporate a company under the Act, capital is one of the most important essential. Capital is anything that generates value to the existing business or the company. It helps in carrying on the proper business of the company. Capital investment can be in various forms that can be financial, human and natural in nature. Financial capital includes the equity, debts, investments and the working capital.[5]

Guidelines under MCA for incorporation of company:

The Ministry of Corporate Affairs has issued guidelines regarding the steps that are needed to be taken to incorporate a new company:

  • The company must bear a unique name that indicates the main objective of the company.
  • Such name must not resemble the name of an already existing company and should not violate the provisions of the Prevention of Improper Use Act, 1950. The service of checking name is available in the Ministry of Corporate Affairs.
  • To ascertain the availability of the name in the e-form 1 A, an application has to be filed in the portal. If the proposed name is not available then the new application has to be filed.
  • After the proposed name has been accepted, the applicant can apply for registration of the new company by filling the required form (Form 1, 18 and Form 32 ) within the 60 days of the name approval.
  • Drafting of the Memorandum and Articles and vetting the same.
  • Stamping of the Memorandum and Articles by appropriate stamp duty.
  • Getting the Memorandum signed by at least two of the subscribers to the MOA and AOA.
  • Ensuring that the Memorandum and Article is dated on the date of stamping.
  • Login in the portal and submit all the necessary documents.

Illustration:

In Posh exports Private Limited V Registrar of Companies[6], the meeting of the board of directors revealed that they did not file the necessary documents that are needed to be filed with the Registrar of companies. The petition was filed to revive the name of the company that was not found in the MCA. The petition was allowed as a result of non coordination of the part time accountant and the petition was allowed with the condition of payment of costs. The company’s incorporation will be complete only when the proper requisites are fulfilled.

Forms that need to be filled in the e-portal:

Form 1– Declaration of compliance

Form 18– Notice of the situation of the registered office of the company.

Form 32– Particulars of the directors, managers or secretary [7]

Subsidiary company:

These types of companies are usually preferred by the Multi National Companies in their targeted countries for capturing markets in that designated country. The subsidiary company has been defined under section 2 (87) of the Companies Act, 2013.

Subsidiary company, in literal terms mean sister company. There will a holding company or the parent company that controls this subsidiary company.

A company can be termed as a subsidiary company when:

  • The composition of the Board of Directors of that company is controlled by the holding company.
  • When the holding company exercises or controls more than one half of the total share capital either at its own or together with other subsidiary companies.

Such holding company shall not have layers of subsidiaries beyond the numbers prescribed.[8]

Formation of subsidiary company:

  • Check the availability of the names that has been proposed for the subsidiary company as under Form INC- 1.
  • After filling the form a DIN ( Director Identification Number ) and DSC ( Digital signature certificate) is made with the help of Ministry of Corporate Affairs, Govt of India.
  • Draft and file the MOA (Memorandum of Association) and AOA (Articles of Association) along with the registration fees and stamp duty.
  • File the Form INC-22 and Form DIR- 12 with the concerned Registrar of Companies.[9]

On the receipt of all these relevant documents the Registrar of Companies (ROC) shall register the company and issue a certificate of Incorporation. After such issuance of certificate, a Corporate Identity Number (CIN) will be allotted by ROC.

Conclusion:

With the advancements in the technology, the process of formation and incorporation of the company has been made easier with the government’s vision of “Ease of doing Business”. This initiative has reduced the steps involved in incorporation of the company easier. It has reduced the discretion and enhanced greater speed and transparency involved in the process.

Reference

[1] Smith V. Anderson

[2] 1886 ILR 13 CAL 43

[3] Section 3(2) of the Companies Act,2013

[4] Section 7 of the Companies Act, 2013

[5] https://corporatefinanceinstitute.com/resources/knowledge/finance/capital/

[6] https://indiankanoon.org/doc/11365021/

[7] http://www.mca.gov.in/MinistryV2/stepstoformanewcompany.html

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