How to Form a Company in India

Þage | 1




Þro[ecL 8eporL ť
Pow Lo form a
company ln lndla
COMPANY REGISTRATION IN INDIA





























SubmlLLed 1oť
SubmlLLed 8y ť Lovedeep
8oll number ť 2649
2011


What are the type of Business Entities AvaiIabIe in India?
The following types of Business
entitles are available in Ìndia:
O Private Limited Company
O Public Limited Company
O Unlimited Company
O Partnership
O Sole Proprietorship
In addition to the above legal
entities, the following types of
entities are available for foreign
investors/foreign companies
doing business in India:
O iaison Office
O #epresentative Office
O !roject Office
O ranch Office
O holly owned Subsidiary Company
O oint Venture Company

imited iabiIity
Partnership, P in
India
A law to allow
"Limited Liability
Partnership" (LLP)
in India has been
enacted by the
Parliament of India
recently.
For more details
visit LLP in India

O
What is a Private imited Company?
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, 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.


What is a PubIic imited Company?
Public Limited Company is a Company limited by shares in
which 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 of such a
Company can at times be unlimited. The minimum number of
shareholders is 7.

What are the advantages of a imited Company?
limited company has following advantages:

O Members' (the directors and shareholders) financial
liability is limited to the amount of money they have paid
for shares.
O The management structure is clearly defined, which
makes it easy to appoint, retire or remove directors.
O Ìf extra capital is needed, it can be raised by selling more
shares privately.
Ìt is simple to admit more members.
O The death, bankruptcy or withdrawal of capital by one
member does not affect the company's ability to trade.
O The disposal of the whole or part of the business is easily
arranged.
High status.




What are the disadvantages of a imited Company?
limited company has following disadvantages:
O Requirement to register the company with the registrar of
companies and provide annual returns and audited
statement of accounts. ll details of the company are
available for public inspection so there can be no secrecy.
There are penalties for failing to make returns.
O Can be more expensive to set up.
O May need professional help to form.
O s a director, you are treated as an employee and must
pay tax.
O The advantages of limited liability status are increasingly
being undermined by banks, finance house, landlords and
suppliers who require personal guarantees from the
directors before they will do business.


What entity is best suited?
The choice of entity depends on circumstance of each case.
Private Limited Company has lesser number of compliances
requirements. Therefore, generally where there is no
requirement of raising of finances through a public issue and
the ownership is intended to be closely held by limited number
of persons, Private Limited Company is the best choice.



What is the minimum paid-up capitaI of a Private imited
Company?
The minimum paid up capital at the time of incorporation of a
private limited company has to be Ìndian Rupees 1,00,000
(about United States Dollars 2,250). There is no upper limit on
having the authorized capital and the paid up capital. Ìt can be
increased any time, by payment of additional stamp duty and
registration fee.


What is the difference between authorized capitaI and paid
up capitaI?
The authorized capital is the capital limit authorized by the
Registrar of Companies up to which the shares can be issued
to the members / public, as the case may be. The paid up
share capital is the paid portion of the capital subscribed by the
shareholders.


What is the procedure in obtaining a name approvaI for the
proposed Company?
n application in Form No. 1 needs to be filed with the
Registrar of Companies (ROC) of the state in which the
Registered Office of the proposed Company is to be situated.
The application is required to be signed by one of the

promoters. The details to be state in the said application are as
follows:1. Four alternative names for the proposed company.
(The name can be coined names from the objects of the
proposed company or the names of the directors, etc. but
should definitely be indicative of the main object of the
company. Justification for the name needs to be specified along
with the application)2. Names and addresses of the promoters
(Minimum 7 for a public company while 2 for private
company).3. uthorized Capital of the proposed company.4.
Main objects of the proposed company.5. Names of other
group companies. On submitting the application, the ROC
scrutinizes the same and sends the approval / objections in
about 10 days to the applicant. On fulfilling of the objections a
formal letter of name approval is issued.


What is the Memorandum of Association (MOA) and the
ArticIes of Association (AOA) of a company and what is
the procedure in their regard?

On receipt of the name approval letter from the ROC the MO
and the O are required to be drafted. The MO states the
main, ancillary / subsidiary and other objects of the proposed
company. The O contains the rules and procedures for the
routine conduct of the proposed company. Ìt also states the
authorized share capital of the proposed company and the
names of its first / permanent directors. fter the MO and
O are required to be stamped.
stamp duty is required to be paid on the MO and on the
O. The stamp duty depends on the authorized share capital.



What are the documents required to be executed for
incorporation?

The following documents are required to be executed (signed)
before they are submitted to the ROC:
1. MO and O - 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.
2. Form No. 1 - This is a declaration to be executed on a
non-judicial stamp paper of ÌNR 20 by one of the directors
of the proposed company or other specified persons such
as ttorneys or dvocates, etc. stating that all the
requirements of the incorporation have been complied
with.
3. 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.
4. 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).
5. 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.
6. Name approval letter in original.
7. Power of ttorney signed by all the subscribers of MO
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 ttorney in case of a subscriber who has
appointed another person to sign the MO on his behalf.9.
Filing fees as may be applicable.



How is the certificate of incorporation issued?
fter the documents in F" 5 are filed, the ROC calls the
attorney on a specific date for scrutiny and making the
corrections in the MO and O filed. On complying with the
same, the certificate of incorporation is granted to the attorney.


When can the newIy formed company start its business
operations?
On receipt of the certificate of incorporation, the public
company has to complete certain other legal formalities such as
a statutory meeting (within 6 months), statutory report, etc. On
completion of the said formalities and on filing of the statutory
report with the ROC the ROC issues the certification of
commencement of business to the company. Thereafter, the
Public Company can start the business operations. The Private
Company can start its business immediately on incorporation.



Pow Lo form a company ln lndla
1he followlng sLeps are requlred Lo form a company (prlvaLe or
publlc) ln lndlaŦ
1Ŧ CeL 'name avallablllLy' from 8eglsLrar of Companles (8CC)Ŧ
2Ŧ urafL and execuLe Memorandum Ǝ ArLlcles of AssoclaLlon and
oLher documenLsŦ
3Ŧ Þay duLles and fees
4Ŧ llle Memorandum Ǝ ArLlcles of AssoclaLlon and oLher documenLs
wlLh 8CC
3Ŧ 8epresenL wlLh 8CC for any reservaLlons or commenLs he may
have
6Ŧ Þrocure lncorporaLlon cerLlflcaLe from 8CCŦ
7Ŧ Subscrlbe Lo Lhe agreed share caplLal of Lhe company
8Ŧ CbLaln commencemenL cerLlflcaLe (for publlc companles)




Pow Lo geL name AvallablllLy
Company law requlres LhaL Lhe name of each company should be
unlqueŦ As suchţ Lhe proposed
name of Lhe company Lo be formed has Lo be approved by Lhe
8eglsLrar of Companles and
blocked Llll reglsLraLlonŦ 1he followlng ls Lhe process Lo geL
avallablllLy of nameŦ
1Ŧ ÞromoLers have Lo flle an appllcaLlon ln lorm 1A glvlng Lhe
followlng parLlcularsť
· names and addresses of promoLers
· Þroposed name of Lhe company
· AlLernaLlve names of Lhe proposed companyŦ 1hls ls requlred lf Lhe
proposed name ls
noL avallableŦ
· 1ype of company Ŵ ÞrlvaLe or Þubllc
· 8rlef ob[ecLs of Lhe company
· Þroposed ulrecLors and Lhelr addresses
· Þroposed address of Lhe company
· AuLhorlsed Share CaplLal (AuLhorlsed caplLal ls Lhe one upLo whlch
company can
lssue sharesŦ 1he pald up caplLal can be lower Lhan Lhls)Ŧ
· ueLalls of Croup companlesţ lf any

· ueLalls of fees pald for name avallablllLy
· noLe abouL slgnlflcance of Lhe proposed nameŦ 1hls ls because
regulaLlons have some
crlLerla based on whlch names are Lo be allowedŦ
2Ŧ A fee of ln8 300 ls Lo be pald along wlLh Lhe appllcaLlonŦ
3Ŧ 1yplcally lL Lakes 4 worklng days for Lhe 8CC Lo conflrm avallablllLy
of name/sŦ 1here
may happen lLeraLlon wlLh Lhe 8CC Lo geL Lhe deslred nameŦ
4Ŧ lf Lhe proposed names are noL approvedţ more alLernaLlve names
have Lo suggesLedŦ
3Ŧ Cn approval of nameţ Lhe 8eglsLrar wlll lssue a name alloLmenL
leLLer and wlll block Lhe
name

Memorandum Ǝ ArLlcles of AssoclaLlon Ŷ lacLs Lo 8emember
1he followlng are some crlLlcal facLs Lo remember ln execuLlng MƎA
of AŦ
1Ŧ 1he promoLers ln Lhelr own handwrlLlng have Lo glve Lhe followlng
deLalls ln Lhe Memorandum
and ArLlcles of assoclaLlon of Lhe companyť
· name
· CccupaLlon
· laLher's/husband's name

· CompleLe Address
· number of Shares subscrlbed
1he Memorandum and ArLlcles have Lo be slgned by all Lhe
promoLers and wlLnessedŦ
1he person/s wlLnesslng has/have Lo glve Lhe followlng deLalls ln
Lhelr own handwrlLlngť
· name
· CccupaLlon
· laLher's/husband's name
· CompleLe Address
Slgnlng ouLslde lndla
ln case Lhe Memorandum and ArLlcles ls Lo be slgned by any of Lhe
promoLers ouL slde lndlaţ Lhen
Lhe slgnlng should be done ln Lhe presence of Consul of lndla aL Lhe
lndlan ConsulaLeŦ
Share CaplLal
1he mlnlmum auLhorlsed share caplLal for lncorporaLlng a ÞrlvaLe
LlmlLed company ls
ln8 100ţ000Ŧ
1he mlnlmum auLhorlsed share caplLal for lncorporaLlng a Þubllc
LlmlLed company ls
ln8 300ţ000Ŧ
number of ÞromoLers

lor lncorporaLlng a ÞrlvaLe LlmlLed Company a mlnlmum of Lwo
promoLers are requlredŦ
lor lncorporaLlng a Þubllc LlmlLed Company a mlnlmum of seven
promoLers are requlred

number of ulrecLors
lor lncorporaLlng a ÞrlvaLe LlmlLed Company a mlnlmum of Lwo
dlrecLors are requlredŦ
lor lncorporaLlng a Þubllc LlmlLed Company a mlnlmum of Lhree
dlrecLors are requlredŦ
lee SLrucLure
1he followlng ls Lhe fees requlred Lo be pald Lo Lhe 8CC for
lncorporaLlon of Lhe companyŦ
AuLhorlsed CaplLal lncremenLal caplLal lee / lncremenLal fee (ln8)
upLo ln8 100ţ000 4ţ000
lrom ln8 100ţ000 Lo ln8
300ţ000
lor every ln8 10ţ000 [ 300
lrom ln8 300ţ000 Lo ln8
3ţ000ţ000
lor every ln8 10ţ000 [ 200
lrom ln8 3ţ000ţ000 Lo ln8
10ţ000ţ000

lor every ln8 10ţ000 [ 100
Cver ln8 10ţ000ţ000 lor every ln8 10ţ000 [ 30
CommencemenL of 8uslness
A commencemenL of buslness cerLlflcaLe has Lo be obLalned from Lhe
8CC ln case of Þubllc
LlmlLed Companles before any buslness acLlvlLy can be Laken upŦ

lnformaLlon 8equlred for name Approval
1he followlng lnformaLlon ls requlred for seeklng name approvalŦ
1Ŧ name of Lhe appllcanL whlch should be one of Lhe promoLers
2Ŧ Address of Lhe appllcanL Ŵ Lhls ls where all communlcaLlon wlll be
senL by 8eglsLrar of
Companles (8CC)
3Ŧ Þroposed name of Lhe company
4Ŧ AlLernaLlve names
3Ŧ Slgnlflcance of Lhe flrsL word of Lhe proposed nameŦ 1hls makes lL
easler Lo geL a deslred
nameŦ
6Ŧ names of Lhe proposed flrsL dlrecLors Ŷ mlnlmum 2 ln Lhe case of a
prlvaLe company and
3 ln Lhe case of a publlc company
7Ŧ Addressesţ daLes of blrLhţ faLher's/husband's names of Lhe
proposed dlrecLors
8Ŧ AuLhorlsed Share CaplLal Ŷ mlnlmum ln8 100000 ln Lhe case of a
prlvaLe llmlLed and
ln8 300000 ln Lhe case of a publlc company
9Ŧ Cb[ecLs of Lhe company ln brlefŦ
10Ŧ Address of 8eglsLered offlce of Lhe proposed companyŦ lf a place
ls noL flnallzedţ Lhls
lnformaLlon can be glven aL Lhe Llme of lncorporaLlonŦ

11Ŧ AppllcaLlon fee for approval of name of ln8 300 has Lo be
remlLLed ln cash