Introduction to Company Incorporation
Incorporation is a legal process to form a company or a corporate organization. Incorporation means the registration of the Company or Organization in Registrar of Company. Various groundwork is carried out to bring a company into existence. The process of an idea of converting into a company includes various stages. The corporation is a legal entity that separates the income and firm’s assets from its investors and owners.
The incorporation of Companies in India is managed by the Companies Act, 2013, which deals with all the needs of establishing the rules and regulations of private and public companies in India. A group of seven or more people forms a public company whereas; only two are needed to form a private company.
Incorporation of a company has several benefits to the investors or owners and being aware of the steps to follow when considering the incorporation of the company can be of great help.
The foremost thing to deal with while starting your own business is fulfilling the legalities to make sure the business runs smoothly. Company registration is a prime process that all business owners need to fulfill.
Different types of companies in India.
Based on Number of Members
Private Limited Company
A Private Limited Company is a business registration by a private entity meant for small businesses. For a Private Limited Company, the minimum number of members is two, which can be extended to a maximum of two hundred members. The owners of private limited companies are known as shareholders and each holds a certain number of shares in the business. Shares of a Private Limited Company can be sold or transferred to individuals, who in turn become owners of the company. To become a shareholder you must purchase one or more shares issued by the company and these are issued when you form the company with each share representing an equal percentage of the business. Additional shares can be created and issued after the business is registered. The more shares you hold, the larger the percentage of the business you own.
A Public Limited Company shares can be purchased by the general public. In a Public Company, there is no limit as to the maximum number of members. However, the minimum number of members is provided. A public company is registered with a minimum of 7 shareholders and 3 directors. In a Public Limited Company, there is no limit on the number of shares. The companies listed on the stock market are such Public Companies. Companies under this category require a certificate from the Registrar of Companies (ROC) before starting their business operations. Such companies are able to attract funds from the public through Public Offers (IPO or FPO).
One Person Company
One Person Company commonly known as OPC is the latest entrant in the types of companies registered in India. It was introduced under the Companies Act 2013, in favor of entrepreneurs who possess the potential to run a business independently and successfully. The minimum paid-up capital of shares in an OPC is INR 1 Lakh.
Based on Liability
Company Limited by Shares
This is the most generic form of a Company. The capital is introduced in the form of Shares i.e., the capital of the company is divided into a small portion, known as shares. The company receives its funding from the contribution of the members, that in-turn, constitutes the share capital of the company. The liability of the members is limited to the value of unpaid shares held by them.
Company Limited by Guarantee
The company can be either a private limited company or a public limited company also, where the capital is not divided into shares. Here, the capital to be introduced by the members, are in nature of the guarantee. The liability of the members is limited by the memorandum to such amount, which the members may respectively contribute to the assets of the company, in the event of it’s going bankrupt.
- Unlimited Company
Unlimited Company is a kind of company that doesn’t have any limit on the liability of its members. This implies that in an event of a loss if the company assets fall short to pay off the creditors, the private asset of its members are then consumed to clear debts.
Section 8 Company
It is registered as a company under Section 8 of the Companies Act, hence, known as Section 8 Company. This type of company registration is as a Non-Profit Organization (NPO). The objective of an NPO is primarily to promote arts, commerce, and various forms of social welfare in the form of education, charity, religion, and protection of the environment, etc. These companies dedicate all their incomes and profits towards the furtherance of their objectives. The dividends are also not paid to its members. Such a company enjoys a special status and a certain exemption.
Limited Liability Partnership
Limited Liability Company is another category of the company registered under the Indian New Companies Act, 2013. A Limited Liability Structured Company (LLP) requires a minimum of two partners. The liability of the members is determined by the number of their share capital. LLP shows better credibility among its investors. This is attributed to the appropriate maintenance of incorporation records, financial records, and tax records.
In India, no business registration can be treated as a company if it is not registered with the registrar of companies under the Companies Act 2013. The company becomes a separate legal entity from its members only after the registration.
Steps for Incorporation of a Company
Make sure of Name Availability
The first step in getting a company incorporated is of obtaining the approval of the name from the Registrar of Companies. A company will be identified with its registered name and that name will be featured in the Memorandum of Association of the company. A company may take over any name which is not prohibited under the Emblems and Names Act, 1950 and which is not alike or does not closely resemble the name of an already registered company.
Preparation of Memorandum of Association
The memorandum of association of a company is referred to as its constitution or rulebook. The memorandum states the field in which the company will do business, the objectives of the company, as well as which type of business the company decides to undertake. The memorandum is to be signed by a minimum of seven members if it is a public limited company and at least two members in the case of a private limited company.
Preparation of Articles of Association
Apart from the memorandum, the Articles of Association is a document that contains rules and regulations relating to the internal management of the company.
Power of Attorney
To fulfill the legal and complex documentation formalities of incorporation of a company, there will be an attorney who will have the authority to act on behalf of the company and its promoters. The attorney will have the authority to make changes in the memorandum, articles, and other documents that have been filed with the registrar.
Preparation of other documents
- A complete list of directors, their addresses and occupations and age. If not separate list is filed, the subscribers to the Memorandum are deemed to be the first directors.
- Copies of preliminary agreements, memorandum and Articles of Association must also be prepared and filed at the time of registration.
- The company is required to have a registered office and its information is filed with the Registrar within thirty days of its registration or from the date of commencement of business.
- Where the company names first directors in its Articles, their particulars are to be submitted with the Registrar within 30 days of its registration or appointment of such directors.
5. A statutory declaration must be signed by any one of the following persons stating that all the requirements of the Act regarding Registration have been duly complied with:
- An Advocate of the Supreme Court or High Court.
- An Attorney or Pleader who is entitled to appear before a High Court.
- A Chartered Accountant who is engaged in formation of the company and also practicing in India.
- Any individual who is named in the Articles of Association as the Company’s Director, Manager or Secretary.
Along with the above documents, the registration and filing fee as per the rates prescribed in Schedule X to the Companies Act, 1956 are to be paid. The fee to be paid varies with the amount of nominal capital in the case of companies with share capital or according to the number of members in the case of companies without share capital.
The Registrar of Companies will verify the documents submitted for registration. If there are any discrepancies found, concerned person will be called to visit the Registrar’s office to rectify the errors in the documents. If the documents for registrations are found clear, the Registrar will register the company and a Registration number is assigned. The Registrar will issue a Certificate of Incorporation. The company will be considered to be a legal entity from the date of registration. The company is born upon the issue of Certificate of Incorporation.