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Meaning of a Company
As per section 2(20) of the Companies Act, 2013 “company” means a company incorporated under Companies Act or under any previous company law.
A company may be defined as “an incorporated association which is an artificial person, having a separate legal entity, with a perpetual succession, a common seal (if any), and a common capital compromised of transferable shares and limited liability.”
Registered companies are those companies that are registered under the Companies Act, 2013 or under any previous Company Law. A company cannot come into existence by itself. The law mandates for a certificate of incorporation issued by the Registrar of Companies subsequent to the completion of various statutory requirements. In consonance with the statutory process, the promoters are required to submit several documents to the Registrar of Companies including the pre-incorporation agreement, Memorandum of Association (MoA), Articles of Association (AoA), and the declaration regarding the adherence to all the legal requirements relating to registration to by an authorized person.
The Registrar of Companies ( ROC ) is an office under the Ministry of Corporate Affairs (MCA), that deals with the administration of companies and Limited Liability Partnerships in India. After authenticating the documents, the ROC inputs the company’s name in the register of companies and provides the certificate of incorporation. The Registrar together with the certificate of incorporation further issues a certificate of commencement of business. This certificate is required by a public limited company prior to commencing its business.
Formation of a Company
According to Section 3(1) of the Companies Act, a company may be formed for any lawful purpose by—
a. seven or more persons, where the company is to be formed as a public company;
b. two or more persons, where the company is to be formed as a private company; or
c. one person, where the company to be formed is to be One Person Company, that is to say, a private company,
by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration. This is done by subscribing to their names or to the memorandum and adhering to the requirements of this Act in respect of registration.
(2) A company formed under sub-section (1) may be either—
(a) a company limited by guarantee; or
(b) a company limited by shares; or
(c) an unlimited company
Benefits of Company Registration in India
A registered company enjoys various benefits as compared to a non-registered one. It acts as evidence to prove its authenticity and enhances the credibility of the business.
1. It gives reliable investors, bank credits and good investment with ease.
2. It protects the company against personal obligation, and defends against other threats and losses.
3. It builds goodwill and also helps in the procurement of more customer attraction.
4. Bigger commitment to wealth and greater stability
5. It increases the ability to develop and expand itself.
6. It provides coverage of the responsibility for the protection of the company’s assets.
There are various types of companies where one can register in India:
Sole proprietorship
The sole proprietorship is amongst the easiest form of company registration in India. One person manages sole ownership, i.e., a sole proprietor. It is the ideal choice if one is looking to have full control over their business.
Key advantages of the sole proprietorship
- Absence of government registration.
- Absence of compliances required to be fulfilled.
- Absence of any government regulatory paperwork.
- No profit-sharing is required.
- One does not require double taxation, that is to say, income tax returns are only paid on the income earned.
One-person company
A new type of business structure called One Person Company (OPC) was introduced by the Indian government in 2013. Prior to this, a single person could not incorporate a company; a minimum of two directors was required to incorporate a company.
The concept of ‘One Person Company’ was introduced in the Act with the following attributes: –
a) OPC can be registered as a private company with one member and it may also have at least one director;
b) Adequate safeguards in case of death/disability of the sole person should be provided by way of appointment of any other individual as Nominee Director. On the death of the original director, the nominee director will manage the affairs of the company until the date of transmission of shares to the member’s legal heirs.
c) in order to distinguish these companies from other companies, it is necessary that Letters ‘OPC’ to be suffixed with the name of One Person.
Private company:
A private company is defined u/s 2(68) of the Companies Act, 2013
Section 3(1)(b) of the act are very restrictive in nature wherein it may in its articles of association restrict the right to transfer of shares. The number of members in such a company might be a maximum of 200 members. The shares and debentures of private companies are not available to the public at large.
While calculating the number of members, people who are the employees of the company along with people who, having been formerly an employee of the company and were members of the company while in that employment and have continued to be members after the employment ceased, are not taken into consideration.
Further, if two or more persons hold single or more shares in a company jointly, they are deemed to be treated as a single member. As per Section 3(1) of the Companies Act, 2013, a Private Company may be formed for any lawful purpose by 2 or more persons. Section 4(1)(a) of the Companies Act, 2013, requires every private company is required to add the words “Private Ltd” at the end of its name. Section 149(1) of the Companies Act, 2013 lays down that every Private company shall have a minimum of 2 directors on its Board.
Public Company:
A Public Company is Defined u/s 2(71) of the Companies Act, 2013 as “A public company means a company which is not a private company.”
As per Section 3(1) of the Companies Act, 2013 Public company may be formed for any lawful purpose by 7 or more persons. Section 149(1) of the Companies Act, 2013 lays down that Every public company shall have a minimum of 3 directors on its Board. Section 4(1)(a) of the Companies Act, 2013 requires a public company is to add the words “Limited” at the end of its name.
As the name suggests, the essence of a public company is that the shares and debentures can are transferable freely to the public, unlike a private company. Only the shares belonging to a public company are capable of being dealt on a stock exchange. Additionally, A private company that is a subsidiary of a public company, will be considered a public company.
Limited liability company
“LLP is an alternative corporate business form that gives the benefits of limited liability of a company and provides the flexibility of a partnership. It can continue its existence irrespective of changes in partners and is capable of entering into contracts and holding property in its own name. It has a separate legal entity, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP. Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus individual partners are shielded from joint liability created by another partner’s wrongful business decisions or misconduct. Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other obligations as a separate entity. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’. LLP is called a hybrid between a company and a partnership.”
The Registrar of Companies certifies that LLPs (Limited Liability Partnerships) needs to comply with the legal requirements enumerated in the Limited Liability Partnership Act, 2008.
Section 8 Company:
A section 8 company is registered as a limited company under section 8 of the Companies Act, 2013 and holds the licence from Central Government (CG) and
1. “has in its objects the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;
2. intends to apply its profits, if any, or other income in promoting its objects; and
3. intends to prohibit the payment of any dividend among its members.”
The proviso to Section 4(1)(a) of the Companies Act, 2013 exempts such company from clause (a) of Section 4(1) which implies that Section 8 Company does not require to add the word “Ltd” or words “Private Ltd” at the end of its name.
Section 8 of the Companies Act, 2013 further lays down the provision related to Incorporation, application for a licence as a charitable company, grant and revocation of the licence by the Central Government. Section 8 Company enjoy various other privileges and exemptions under the Companies Act.
How to Register a Company in India?
Registering a company in India is a simple 4-step process. Here are the documents that are required prior to application for registration:
i. A Digital Signature Certificate (DSC)
ii. A Director Identification Number (DIN)
iii. Registration on the MCA Portal or New user registration
iv. Certificate of Incorporation
Documents required prior to submission:
• Original copy of the formal letter issued by ROC regarding the availability of Company name
• DIN of all those directors of a proposed company
• DSC – Digital Signature Certificate
• Form-1 for the incorporation of a company
• Form-18 for situation or address of the proposed company
• Form-32 for particulars of proposed directors, managers and secretary
Can the Registrar of Companies refuse to register a company?
The Registrar of Companies (ROC) can decline the registration a company on various grounds. The Memorandum of Association (MOA) is filed with the registrar and incorporates five clauses, namely, object clause; name clause; liability clause; capital clause and registered office clause. The registrar needs to ensure that registration is not allowed for companies that have objectionable name. The registrar can decline to register any company whose object clause is deemed to be unlawful.
Steps to Be Taken to Incorporate A New Company
The following steps to be taken to get a new company incorporated:
1. At least one suitable name up to a maximum of six names, has to be selected, in preferential order, that indicates the main objects of the company.
2. It needs to be ensured that the name does not resemble the name of any other already registered company and further does not violate the provisions of emblems and names (Prevention of Improper Use Act, 1950) by availing the services of checking name availability on the portal.
3. Application has to be made to the concerned RoC to ascertain the availability of name in eForm1 A, by logging in to the portal along with a fee of Rs. 500/- and the digital signature of the applicant proposing the company has to be attached in the form. In case the proposed name is unavailable, the user has to apply for a fresh name via the same application.
4. Subsequent to the approval of the name, the applicant is now allowed to apply for registration of the new company by filing the required forms (that is Form 1, 18 and 32) within a period of 60 days of name approval.
5. Arrangement for the drafting of the memorandum and articles of association by the solicitors, vetting of the same by RoC and printing of the same is to be done.
6. Next the memorandum and articles have to be stamped with the appropriate stamp duty.
7. The Memorandum and the Articles need to be signed by at least two subscribers in his/her own hand, his/her father’s name, occupation, address and the number of shares subscribed for and witnessed by one person at least.
8. It is to be ensured that the Memorandum and Article are dated on a date post the date of stamping.
9. Subsequently, Login to the portal and fill in the following forms and attach the mandatory documents listed in the e-Form.
10. Declaration of compliance in Form-1 is needed.
11. Notice of the situation of the registered office of the company – Form-18 has to be given.
12. Particulars of the Director’s, Manager or Secretary – Form-32 has to be provided.
13. Submit the following e-Forms after attaching the digital signature, pay the requisite filing and registration fees and send the physical copy of the Memorandum and Article of Association to the RoC.
14. After processing of the Form is complete and Corporate Identity is generated obtain Certificate of Incorporation from RoC.
Additional steps required to be taken for the formation of a Public Limited Company:
To obtain a Commencement of Business Certificate after incorporation of the company the public company has to make comply with the following:
• The company needs to file a declaration by way of e-Form 20 and attach the statement in lieu of the prospectus (schedule III), or
• The company further needs to file a declaration by way of e-Form 19 and attach the prospectus (Schedule II) to it.
• Obtain the Certificate of Commencement of Business.
