Incorporation of a Company in India

[vc_row][vc_column][vc_column_text]A company in India is required to be incorporated under The Companies Act, 1956 and is also required to comply with various regulations/ procedures laid down under the Companies Act, 1956.
An overseas company can set up its subsidiary company either in the form of

•  A Private Company
•  A Public Company

What is a 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,
• Cannot make or accept deposits from Public, and
• There are restrictions 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.
• The minimum number of shareholders is 2 (two).

What is a Public Limited Company?

A 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.
• The minimum number of shareholders is 7 (seven).

What is the Meaning of “Holding Company” and “Subsidiary”

A company shall be deemed to be a subsidiary of another if, but only if:

a. That other controls the composition of its Board of directors; or

b. That other-

i. Where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company;

ii. Where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital; or]

c. The first-mentioned company is a subsidiary of any company which is that other’s subsidiary.

What entity is best suited?

The choice of entity depends on circumstance of each case. A 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, a Private Limited Company is the best choice.

What is the minimum paid-up capital of a Private Limited Company?

The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1,00,000. There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee.

What is the difference between Authorized Capital and Paid up Capital?

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 approval for the proposed Company?

An application in Form No. 1A 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. Authorized 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 5 days to the applicant. On fulfilling of the objections a formal letter of name approval is issued.

What are the Memorandum of Association (MOA) and the Articles 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 MOA and the AOA are required to be drafted. The MOA states the main, ancillary / subsidiary and other objects of the proposed company. The AOA contains the rules and procedures for the routine conduct of the proposed company. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. After that the MOA and AOA are required to be stamped.

A stamp duty is required to be paid on the MOA and on the AOA. 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. MOA and AOA – These are required to be executed by the promoters in their own hand in the presence of a witness 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 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.
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 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.

How is the certificate of incorporation issued?

After the documents are filed, the ROC calls the attorney on a specific date for scrutiny and making the corrections in the MOA and AOA filed. On complying with the same, the certificate of incorporation is granted to the attorney.

When can the newly 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.

Minimum requirements for incorporation of a company

Particulars Incase the Subsidiary is a
Public Company
Incase the Subsidiary is a
Private Company
Minimum Directors 3 2
Minimum Subscribers 7 2
Minimum Authorized Capital Rs. 5.00 Lakhs Rs. 1.00 Lakh

Note: Lakh is a term used often in India that denotes 1,00,000 (One Lakh equals One Hundred Thousand)

Director Identification Number (DIN):

Every individual proposed to be appointed as a Director need to have a Director Identification Number (DIN). For filing name availability provisional DIN is sufficient (which is applied online) For filing incorporation documents with the ROC, the permanent DIN is must and same takes 4-5 days after sending documents to DIN Cell, Noida.

Digital Signature Certificate (DSC):

All the documents have to be filed with the ROC through electronic filing (e-filing) and same requires authentication through DSC. At least one director need to have a DSC issued under the Information Technology Act 2000 to file name availability and incorporation documents.

Stamp Duty:

For incorporation of a Company in the State of Andhra Pradesh will attract following stamp duty:

– Memorandum of Association – Rs. 500.
– Articles of Association – 0.15% on the Authorised Share Capital.

Filing Fee with the Registrar of Companies:

Registration fees for the incorporation would depend on the proposed authorized capital. For the first Rs. 1.00 Crore authorized capital the fees is Rs. 1,56,000/-. For every subsequent one crore authorized capital the fees is Rs. 50000/-.

Besides the registration fees there would be nominal fees for filing of various forms.

Note: Crore is a term used often in India that denotes 10,000,000 (One Crore equals Ten Million)[/vc_column_text][/vc_column][/vc_row]

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