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COMPANY FORMATION
ARPITA PAREKH
WELINGKAR INSTITUTE OF MANAGEMENT
DEVELOPMENT & RESEARCH
YEAR OF SUBMISSION: - APRIL, 2011
ACKNOWLEDGEMENT
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CERTIFICATE FROM THE GUIDE
This is to certify that the Project work titled COMPANY FORMATION is a
bonafide work carried out by ARPITA PAREKH (Admission No.) ..............
a candidate for the / Post Graduate Diploma examination of the Welingkar
Institute of Management under my guidance and direction.
SIGNATURE OF GUIDE:
NAME : MANAN UDANI
DESIGNATION: COMPANY SECRETARY
ADDRESS : B-17, SHANTI NAGAR
S.V. ROAD,
MALAD (WEST),
MUMBAI - 400064
STAMP/SEAL OF THE ORGANIZATION
DATE: ________
PLACE: MUMBAI
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Table of contents
TITLE PAGE
CERTIFICATE FROM THE GUIDE
ACKNOWLEDGEMENT
A. INTRODUCTION
B. BACKGROUND
C. METHODOLOGY
D. CONCLUSION
E. RECOMMENDATION
F. LIMITATION
G. BIBLOGRAPHY
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I NTRODUCTION:-
BUSINESS START UP IN INDIA
Pursuance of economic activity for the purpose of earning profit and acquiring wealth is a
common phenomena among all business enterprises, be it Industry-based or commerce-
oriented. With the kind of scope that the term business has, the activities that come under the
purview of business may be categorized into Industry and Commerce. The term Industry
covers the entire span of economic activities related to production of goods and services.
The term Commerce, on the other hand, is related to economic activities related
to the distribution of goods and service. Generally businesses are started by ambitious
individuals or by a group of friends in partnership. These new entrepreneurs start business with
a vision to churn out a profitable business out of whatever little resources and efforts they put
in and in return expect to be owners of a successful concern down the line. As
starting a business is no childs play, it is important to decide on the subject matter
of the business very carefully, i.e. what would be the nature of the products, the
magnitude of the work force, materials, infrastructure, market research and so on.
Ideal is to consider all aspects to setting up of a business and follow proper steps towards
starting the business.
BUSINESS REGULATORY REQUIREMENT
There are some specific regulatory business requirements to be considered at the time of setting
up a new business each time. For example, entrepreneurs in public and private companies have
to adhere to the rules and regulations of the Companies Act 1956. The act clearly lays down
provision for formation of company, powers of directors and managers, responsibilities of
directors and managers, raising of capital, holding company meetings, maintenance and audit
of company accounts, powers of inspection and investigation of company affairs,
reconstruction and amalgamation of the company and winding up of a company. The business
regulations differ from business to business depending upon the nature of the business. The
Companies Act applies to private and public limited companies. However, there are different
business regulations for different forms of businesses. For sole proprietor firm and a
partnership firm, the business regulations are entirely different.
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CHOICE OF SERVICES
Once the business plan is made, the next step forward is finalizing the products and services
that would be manufactured or provided. As it is a crucial step, it must be preceded by a
thorough research and analysis of the industry, the market, the competitors and so on. It is
absolutely indispensable to understand the industry and its functioning. It is also important to
gather the infrastructure and resource required for manufacturing or providing the product/
service.
INFRASTRUCTURAL SET UP
Any aspiring entrepreneur faces many crucial decisions to be made before a business can be set
up. Besides finalizing the products and services to be provided, decision regarding location of
the business is as important a decision. It is a good idea, therefore, to determine the basic
infrastructure facilities required for smooth operations of your business.
In order to start, the entrepreneur must get a plan or layout of his factory approved from the
concerned authorities. It is something which is mandatory all business entities irrespective of
their size, scale and worth.
SELECTION OF AN APPROPRIATE FORM OF ORGANIZATION
Once an entrepreneur decides to set up a business, he faces the option to choose between
various forms of organization starting from Sole Proprietorship to Partnership firm, Joint
Hindu Family Business, Co-operative societies,Private Limited Company and Public Limited
Company. Each form of business organization has its own set of advantages, disadvantages and
features that must be explored and understood before taking a decision. Selection of the right
form of business organization is imperative for longevity of the business. While the right
choice of form facilitates efficiency in business functions, a mess up in this regard may lead to
gross mismanagement issues. The form of organization for any business determines its focal
point of responsibility, power and control and the extent of role
enjoyed by the entrepreneur in the organization. It determines the extent of
risk the entrepreneur faces and the method of division of profit or loss to be followed.
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COMPANY AS A FORM OF ORGANISATION
A company is an association of both natural & artificial persons incorporated under the existing
law of a country. Company is a voluntary association of persons formed for the purpose of
doing business having a distinct name and limited liability. It is a juristic person having a
separate legal entity distinct from the members who constitute it, capable of rights and
duties of its own and endowed with the potential of perpetual succession. In terms
of the Companies Act a company means a company formed & registered under the companies
Act 1956 or under any of the previous laws relating to the companies" [Section 3(1) (ii)]. In
common law, a company is a legal person or legal entity having separate form, & capable of
surviving beyond the lives of its members. However, company is not a citizen so as to claim
fundamental rights granted to citizens.
CHARACTERISTICS OF A COMPANY:
A company registered under the Companies Act has the following features: -
(1) separate legal entity;
(2) incorporated body;
(3) artificial legal person;
(4) perpetual succession;
(5) limited liability;
(6) transferability of shares
(7) common seal;
(8) right to own property;
(9) right to sue;
(10) right to enter into contracts;
(11) flexibility of investment;
(12) separation of control from the ownership.
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Company is a Juristic person' and it can file a suit as an 'indigent person'
An expression 'person' includes not merely a natural person but also other juridical
persons. A company being a juristic person would be represented before a Court of law or any
other place by a person competent to represent it. It is enough that the person competent to
represent a company presents the application on behalf of the company. Minors, lunatics or
person under any disability are also entitled to file a suit either through guardian or the next
fiend. In such a case it is the guardian or next fiend who is competent to represent the
petitioner. A public limited company, which is otherwise entitled to maintain a suit as a legal
person, can maintain an application under the Civil Procedure Code.
Company can be a complainant in a criminal case through its representative
The complainant must be a corporeal person capable of making his physical presence in the
Court. Its corollary is that even if a complaint is made in the name of an incorporeal person
like a company or corporation it is necessary that a natural person represents juristic person in
the Court and it is that naturalperson who is looked upon, for all practical purposes, to be the
complainant in the case. Decree passed against a company cannot be satisfied by attachment
and sale of properties belonging to other limited companies managed by same group of
directors.
Company is a separate legal entity
Limited company is a separate legal entity distinct from its shareholders. Merely because there
is only one shareholder, the entities which are otherwise distinct, one is a natural person
and the other is an artificial juristic person, it cannot be contended that the said entities
merge and one can act for and on behalf of other.
A shareholder has no right to intervene or object in suit pending against company in respect of
some of its assets independently of company.
Transfer of property by promoter
When a promoter transfers its property to Company on incorporation, which ensures for its
benefit, no conveyance is necessary.
Company is liable for a criminal offence
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A company can be held liable for criminal intention. A company can be held liable for an
offence of conspiracy to defraud. If act was criminal act of an officer, to make company liable
it must be proved as a matter of fact that officer was acting within limits of his authority on
behalf of company.
Company can be a trustee
A company can act as a trustee if permitted by its objects clause.
Company cannot be a receiver
Body corporate is not qualified for appointment as receiver of property of a company
formed and registered under Companies Act.
Major constituents of a company
The major constituents of a company are its members, who are the ultimate owners, and its
directors. It is an important feature of the company form of business, that there is a gap
between the ownership and control over the affairs of the company. In real sense the members
are the owners of a company, but it is being managed by the directors who are elected
representatives of its members, because it is absolutely necessary for it to have a human
agency called as the company's Board of directors. The Board of directors comprises the
directors.
Lifting of the Corporate Veil
The basic principle, that the company is a distinct legal entity from its members, is
regarded as a curtain or a veil between the company and its members. This corporate veil
protects the members from the liability of the company. When we look at the economic reality
of the situation, the 'corporate veil' is said to have been lifted in certain circumstances.
As a matter of rule, the corporate veil cannot be lifted to see the identity of the persons behind it
except in a few exceptional circumstances/situations, which have developed over a period of
time through judicial pronouncements. These are:
to determine whether, it is an enemy company;
if it is used for evasion or to circumvent tax obligation;
when it is formed to defeat/circumvent law/defraud creditors/ to avoid legal obligations;
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where the companies are in relationship of holding and subsidiary companies;
the laws relating to foreign exchange control have been violated;
a shareholder has lost the privilege of limited liability;
where the sole responsible person is the dependent himself;
by implying in certain cases that the company is an agent or the trustee of its members;
where a particular director could be proceeded against in pursuance of the impugned
show cause notice or where he is liable for the payment of all duties charged and to all
penalties;
where the corporate entity is used for a fraudulent purpose;
where corporate shield was blatantly used to disobey orders of the Court wilfully.
It was held in the case of Krishi Foundry Employees' Union v Krishi Engineers Ltd 2003
CLC 546 (AP) that lifting of corporate veil is permissible if public interest requires. If the
company uses another concern(s) to facilitate evasion of its legal obligation like payment oftaxes, direct or indirect, or denial of statutory benefits to workmen, the Court has to disregard
its separate legal entity. The question in each case is of the company law and the corporate
personality is of secondary importance. The important question is whether the method adopted
for evasion of legal obligations was intended to challenge public interest.
The corporate veil may be lifted where a statute itself contemplates lifting the veil, or
fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent
statute is sought to be evaded or where associated companies arc inextricably connected as to
be, in reality, part of one concern. [Life Insurance Corpn. of India v Escorts Ltd. (1986) 59
Comp Cas 548 (SC)].
Where it is found that corporate character has been used for committing illegalities and for
defraudingpeople, corporate veil can be lifted with a view to rendering full justice to
affected parties. [Delhi Development Authority v Skipper Construction Co. (P) Ltd. (1996) 4
Comp. LI 233 (SC)].
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The corporate veil is lifted when in defence proceedings, such as for the evasion of tax, an
entity relies on its corporate personality as a shield to cover its wrong doings. [BSN (UK)
Ltd. v Janardan Mohandas Rajan Pillai (1996) 86 Comp Cas 371 (Bom)].
Where a transaction of sale of its immovable property by a company in favour of the wives
of the directors is alleged to be sham and collusive, the court will be justified in piercing the
veil of incorporation to ascertain the true nature of the transaction as to who were the real
parties to the sale and whether it was genuine and bona fide or whether it was between the
husbands and the wives behind the facade of the separate entity of the company. [Subra
Mukherjee v Bharat Coking Coal Ltd. (2000) 101 Comp Cas 257 (SC)].
BACKGROUND :Classification of companies
Companies under the Companies Act, 1956 may be classified on various grounds as under:
I. On the basis of business activities undertaken:
(1) Manufacturing Activities
(2) Service Activities
(3) Non-Banking Finance Activities
(4)Non-profit making (Section-25)
(5) Producer (Section 581A)
II. On the basis of liabilities of the members and directors:
(1) With Limited liability
(a) Limited by shares
(b) Limited by Guarantee & having share capital
(c) Limited by Guarantee
(2) With unlimited liability
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III. On the basis of membership pattern/size:
(1) Public
(a) Unlisted
(b) Listed
(2) Private
(a) Independent
(b) Subsidiary of Public Co.
(3) Government
IV. On the basis of place of registration:
(1) Indian Company (incorporated in India)
(2) Foreign Company (Company incorporated outside India but having place of business
in India)
V. On the basis of control over the management:
(1) Holding Company
(2) Subsidiary Company
Types of Companies
MANUFACTURING COMPANIES
Companies mainly engaged in any type of manufacturing activities, although they may
have other businesses, are primarily classified as manufacturing companies. These
companies are required to comply with the provisions of Companies Act, 1956 alongwith
the Companies (Auditor's Report) Order, 2003 (CARO) which has come into force
w.e.f 1st July 2003 and in the matter of deposits under section 58A of the Act and the
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Companies (Acceptance of Deposits) Rules, 1975.
SERVICE COMPANIES
Companies mainly engaged in any type of service activities like consultancy,management, information technology, etc., although they may have other businesses, are
termed as service companies. These companies have to comply with the provisions of
Companies Act, 1956 alongwith the rules prescribed in the Companies (Auditor's Report)
Order, 2003 (CARO) which has come into force w.e.f. 1stJuly, 2003 as may be applicable and
in the matter of deposits under section 58A of the Companies Act, 1956 and the Companies
(Acceptance of Deposits) Rules, 1975.
NON-BANKING FINANCIAL COMPANIES (NBFC)
Companies, which are not banking companies but are engaged in the business activities,
related to loan, finance, investment, leasing, hire purchase and other fund-based activities,
are termed as Non- Banking Financial Companies. The basic criteria of a company to be
considered as a NBFC are:
1. deployment of funds; and
2. recognition of income.
If majority of funds are deployed in and/or major income accrues from NBFC activities,
although it may have other businesses, like manufacturing or service activities, etc., such
company shall be deemed and classified as NBFC and these companies are required to
comply with the provisions of RBI Act, and the rules and directions thereof, in addition to the
provisions of Companies Act, 1956.
There are certain criteria for NBFC Companies viz. Compulsory registration with the
RBI for commencement/continuance of NBFC activities, minimum Net Owned Fund,
requirement of compulsory rating and RBI compliance before acceptance of deposits, etc.
If the company is having business activities of housing finance, it has to comply with the
provisions ofNational Housing Bank Act, 1987 and directions issued by the National
Housing Bank and must be registered with NHB.
NON-PROFIT MAKING/CHARITABLE COMPANIES
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Any association desirous of being incorporated as a company with limited liability,
without the addition of word "Limited" or the words "Private Limited" as the case may be
shall make an application electronically to the Central Government (powers delegated
to the Regional Director) on behalf of such company/proposed company as the case may be,
for grant of licence under section 25.
It is usual to form such companies whose objects may be to protect and promote the interests of
traders and business groups or to promote at, science, religion, charity or such other general
purpose, which is in the overall interest of the community. Section 25 of the Companies Act,
1956 deals with the powers of the Central Government to dispense with 'Limited' in the name of
charitable or other companies on fulfilments of certain conditions and is entrusted with the
power to grant licence to association that for the companies proposed to be formed without the
word "Limited" or "Private Limited" in their names or to companies already formed to delete
the said words from their names where the Central Government is satisfied that:
(a) the object for which the company is proposed to be formed or already formed is to
promote commerce, at, science, religion, charity or any other useful objects;
(b) profits, if any, earned in carrying out the object and other income are proposed to be applied
only for promoting its objects; and
(c) the company intends to prohibit the payment of dividend to its members.
LIMITED COMPANIES
In such types of companies, the liabilities of members are always limited subject to some
exceptions.
COMPANIES LIMITED BY SHARES
These types of companies are quite common in commercial, trading and industrial world.
Such companies are characterised with an authorised share capital of a certain amount,
which is divided into units of definite sum called shares. The authorised share capital may
comprise of more than one kind of shares, viz. ordinary or equity shares (voting and non-
voting) and preference shares. The liability of each member of such company is limited to the
unpaid amount of shares and premium, if any, held by him.
COMPANIES LIMITED BY GUARANTEE AND HAVING SHARE CAPITAL
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Such a company by way of undertaking in its Memorandum of Association restricts the liabilities
of its members to a certain fixed amount, for payment of the debts and liabilities of the
company in the event of winding up. The members are liable only for the amount contracted
before he ceased to be a member or payment of the debts and liabilities within one year after he
ceased to be a member. Such companies may also have share capital whenever necessary. In that
event, the members will be liable for the amount, if any, remaining unpaid on the shares
subscribed by them, in addition to the above guaranteed amount.
COMPANIES LIMITED BY GUARANTEE WITHOUT HAVING SHARE CAPITAL
Companies limited by guarantee without having share capital are exactly similar in
nature to the guarantee companies as referred above except that there will be no share
capital. The members will be liable, in the circumstance referred to above, to contribute
an amount not exceeding the sum specified in the Memorandum of Association.
UNLIMITED COMPANIES
Such types of companies are analogous to that of partnership firm in respect of the
liability of a member. Every member in such a company is jointly and severally liable for all
the debts and liabilities of the company.
PUBLIC LIMITED COMPANIES
The Company defined under section 3(1)(iv) of the Companies Act, 1956 is a public company
which is not a private company;
(i) has a minimum paid-up capital of Rs. 5 lakhs or such higher capital as may be prescribed;
(ii) is a private company but subsidiary of a public company.
UNLISTED COMPANIES
These types of companies do not invite general public to subscribe for its shares and
securities and generally the directors, friends, their relatives and associates hold all the
shares and securities in such companies. Unlisted companies are not required to comply with
any requirements of the stock exchange and SEBI, until and unless it proposes to offer its
securities to the general public by way of public issue or otherwise.
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LISTED COMPANIES
These types of companies are having listing of its securities with one or more recognised
stock exchanges in the country, these companies are required to comply with the
requirements of the Listing Agreement, Depository Rules and SEBI guidelines as may be
amended from time to time.
PRIVATE LIMITED COMPANIES
Section 3(1)(iii) defines a private company as one which
(a) has a minimum paid-up share capital of Rs.1 Lakh or such higher capital as may be
prescribed;
and
(b) by its Articles of Association:
(i) restricts the right to transfer its shares;
(ii) limits the number of its members to 50 which will not include:
A. members who are employees of the company; and
B. members who are ex-employees of the company and were members while in such
employment and who have continued to be members after ceasing to be employees;
(iii) prohibits any invitation to the public to subscribe for any shares or debentures of
the company; and
(iv) prohibits any i nvitation or acceptance of deposits from persons other than its
members, directors or their relatives.
This goes to say that a private company, in addition to the earlier conditions, shall have a
minimum paid-up share capital of Rupees One Lakh or such higher capital as may be prescribed
and its Articles shallprohibit invitation or acceptance of deposits from persons other than
its members, directors or their relatives. In case of such companies, public interest is not
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involved.
The basic characteristics of a private company in terms of section 3(1)(iii) of the Act do not get
altered just because it is a subsidiary of a public company in view of the fiction in terms of
section 3(l)(iv)(c) of the Act that it is a public company. May be it is a public company in
relation to other provisions of the Act but not with reference to its basic characteristics.
In terms of that section, a company is a private company when its articles restrict the right of
transfer of shares, restrict its membership to 50 (other than employees shareholders) and
prohibits invitation to public to subscribe to it shares. Therefore, all the provisions in the articles
to maintain the basic characteristics of a private company in terms of section 3(1)(iii) will
continue to govern the affairs of the company even though it is a subsidiary of a public
company. One of the basic characteristics of a private company in terms of that section is
restriction on the right to transfer and the same will apply even if a private company is a
subsidiary of a public company. [Hillcrest Realty SDN.BHD v Hotel Queen Road (P) Ltd. (2006)
72 CLA 245 (CLB)].
HOLDING AND SUBSIDIARY COMPANIES
A Company shall be deemed to be subsidiary of another if the other company controls the
composition of the Board of directors of the former; or the other company exercises or controls
more than half of the total voting power of the former where that former company was
incorporated prior to the commencement of the Companies Act, 1956 in which the holders
of the preference shares issued prior to such commencement have the same voting rights
as equity shares; or the other holds more than half in nominal value of the equity shares of the
former; or the former company is a subsidiary of any other company which is the subsidiary of
the other. [Section 4(1)] (See drat resolution in Appendix 1)
Composition of directors in the subsidiary company
The composition of a Board of directors of the company shall be controlled by the another
company if the latter by the exercise of some power exercisable by it at its discretion
without the consent or concurrence of any other person can appoint or remove the all or
majority of the directors of the former company, if any of the following conditions is satisfied:
(i) that a person cannot be appointed as a director of a former company without the exercise in
his favour of the power by the latter company;
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(ii) that a person's appointment as a director in the former company follows necessarily
from his appointment as director or manager of, or to any other office or employment, in
the latter company;
(iii) that the directorship is held by an individual nominated by the latter company or its
subsidiary.
An agreement to provide authority to the lenders to appoint directors in the company may
be deemed to be control over the composition of the Board of directors
It is possible to obtain control in regard to composition of the Board by agreement by which
one company may agree to advance funds to another company and in return be given control to
appoint all ormajority of the Board of directors in the borrowing company. This right would
be sufficient to constitute the lending company as holding company and the borrowing company
as subsidiary.
Ascertainment whether the company is a subsidiary of another company.
To ascertain whether one company is a subsidiary of another, following points may also be noted:
(i) Any shares held in a company in a judiciary capacity on behalf of some other person
will not come under the shareholding held by the other.
(ii) Any shares held by a nominee for the other company will be included in the other
company's shareholding. Further, shares held by a subsidiary or by a nominee for the
subsidiary shall be treated as held or exercisable by that other company.
(iii) Where the ordinary business of the other or its subsidiaries includes lending of money and
shares are held or power exercisable by way of security only, such shares shall not be taken
to be the shareholding of the other.
Where a body corporate is incorporated in a country outside the country, a subsidiary or
holding company of the body corporate under the law of that country shall be deemed to be a
subsidiary or holding company of the body corporate within the meaning of this Act, whether
the requirements of section 4 are fulfilled or not. [Section 4(6)]
PRODUCER COMPANIES
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By the Companies (Amendment) Act, 2002, a new Part IXA has been inserted under the Act
with the main objective to provide provisions for formation of co-operative society as a
company and to convert existing co-operative societies into companies as the provisions
available under Pat IX were available for conversion of a partnership firm into a company.
The conversion of co-operatives into producer companies is purely voluntary. The conversion
option by co-operative society can be exercised only if two-thirds of the members of the
concerned society vote in favour of the resolution to that effect. The producer company
indicate that only certain categories of persons can participate in the ownership of such
companies, the members of the producer company have necessarily to be "primary
producers", that is persons engaged in an activity connected with, or relatable to, primary
produce.
The Companies (Amendment) Act, 2002 provides a statutory and regulatory framework that
creates the potential for producer-owned enterprises to compete with other enterprises on a
competitive footing by way of various forms of companies. This will provide an
opportunity to cooperative institutions to voluntarily transform themselves into new form of
producer companies.
GOVERNMENT COMPANIES
Section 617 of the Companies Act, 1956 denies Government Company on the basis of
amount invested in the capital of the company. Such types of companies may be private
limited, public limited whether listed or not.
If not less than fifty-one per cent of the paid-up share capital of the company is held by the
Central Government or by a State Government or State Governments or partly by the
Central or partly by one or more State Governments, then the company shall be treated as
Government Company and includes any subsidiary of a Government Company. Government
Companies is exempted from certain provisions of the Companies Act, 1956.
METHODOLOGY:
COMPANY FORMATION
The Companies Act of 1956 sets down rules for the establishment of both public and private
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companies. The most commonly used corporate form is the limited company, unlimited
companies being relatively uncommon. Any seven or more persons, or where the company to
be formed will be a private company, any two or more persons, associated for any lawful
purpose may by subscribing their names to a memorandum of association & otherwise
complying with the requirements of the Companies Act 1956 (the Act) in respect of
registration, form an incorporated company, with or without limited liability (Section 12 of the
Act)
A company is formed by registering the Memorandum and Articles of Association with the
State Registrar of Companies of the state in which the main office is to be located.
Foreign companies engaged in manufacturing and trading activities abroad are permitted by the
Reserve Bank of India to open branch offices in India for the purpose of carrying on the
following activities in India:
To represent the parent company or other foreign companies in various matters in India,
for example, acting as buying/selling agents in India, etc.
To conduct research work in which the parent company is engaged provided the results
of the research work are made available to Indian companies
To undertake export and import trading activities
To promote possible technical and financial collaboration between Indian companies
and overseas companies.
Application for permission to open a branch, a project office or liaison office is made via the
Reserve Bank of India by submitting form FNC-5 to the Controller, Foreign Investment and
Technology Transfer Section of the Reserve Bank of India. For opening a project or site office,
application may be made on Form FNC-10 to the regional offices of the Reserve Bank of India.
A foreign investor need not have a local partner, whether or not the foreigner wants to hold full
equity of the company. The portion of the equity thus not held by the foreign investor can be
offered to the public.
FOR INCORPORATION OF COMPANIES SECTION 12 STIPULATES EXISTENCE
OF THE FOLLOWING INGREDIENTS FOR THE INCORPORATION OF THE
COMPANY:
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1) Promoters of the company: At least 7 in case of a public limited company & at least 2 in
case of a private company
2) Lawful purpose for which they should associate themselves
3) Promoters must subscribe their names to the memorandum of association of the company.
4) Promoters must comply with the requirements of the Companies Act, 1956, in respect of
registration of the company.
5) Minimum paid up capital should be Rs.1 lakh in case of a private company & Rs.5 lakhs in
case of a public company or such a higher paid up capital as prescribed.
PROMOTERS TO TAKE STEPS FOR FORMATION OF COMPANY:
Promoters are the persons, who conceive the idea or visualize a project and then steps to
execute the idea into reality. They broach their idea to friends, or business associates make
arrangements for collecting equity & loan for the company, prepare a team of persons who
would act as its directors & take all other steps for compliance with the requirements of the
Companies Act in respect of registration of the company.
The Companies Act does not define the expression "promoter It is referred to in Section (6) of
Section 62 of the Act. However, it is restricted to & is meant only for the purposes of a
prospectus. It states that the expression promoter means a person who was a party to the
preparation of the prospectus, but does not include any person by reason acting in a
professional capacity for persons engaged in procuring the formation of company.
PROCEDURE FOR INCORPORATION OF PUBLIC LIMITED COMPANY H AVING
SHARE CAPITAL:
The following procedural steps are required to be taken by promoters for the incorporation of a
public limited company:
Selection of the type of Company
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The promoters of a Company may be individual entrepreneurs or bodies corporate engaged in
efforts to incorporate a company. They have the power of defining the object of the Company
and deciding various matters for the company proposed to be incorporated. It is depending
upon the purposes for which the Company is to be incorporated, proposed scale of operations,
capital involved etc. the promoters can select type of the Company as they wish to form
themselves into viz. private, public Company, non-profit making company etc.
Requirement for having DIN
The concept of a Director Identification Number (DIN) has been introduced for the first time
with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such,
all the existing and every individual, intended to be appointed as director of a Company shall
make an application for allotment of Director Identification Number (DIN) to the Central
Government in the prescribed DIN Form. Therefore before submission of e-form 1A all the
directors of the proposed Company must ensure that they are having DIN and if not, it should
first be obtained, however on the basis of the provisional DIN allotted online will serve the
purpose.
Requirement for having Digital Signatures
After 16th September, 2006, every documents prescribed under the Companies Act, 1956, every
documents prescribed under the Companies Act, 1956 is required to be filed with the digital
signature of the managing director or director or manager or secretary of the Company,
therefore it is compulsory required to obtain Digital Signatures of atleast one director to sign e-
form 1A and other documents. It may be noted that if the director or other persons covered are
already having digital signatures, their signatures maybe used for the abovesaid purposes and
there is no need to take new digital signature again.
(i) SELECTING THE NAME OF T HE COMPANY & ASCERTAINING ITS
AVAILABILITY FROM ROC:
Promoters are required to select at least 6 names for the proposed company & secure the name
availability by making an application to the Registrar of the Companies of the State in which
they want to have the proposed company incorporated .The application is required to be made
in e-form 1A as prescribed in the Companies (Central Governments) General rules & Forms
(Amendment) Act, 2006, for the purpose, along with the prescribed application fee of Rs. 500/-
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It must also be ensured that the proposed names do not violate the provisions of emblems &
names (Prevention of Improper use) Act, 1950.
The names of the proposed company are to be given in e-form 1A in order of the promoters
preference so that if the first name is not available, the registrar may consider the second name
& if the second name is also not available, the Registrar may consider the third name & then
the fourth name, so that time in referring back forth may be saved. The proposed names should
not be identical with or too closely resemble the names by which a company in existence has
been previously registered and the names should be selected after taking notes of numerous
provisions, clarifications, circulars and rules made by the Ministry of Corporate Affairs. In case
key word is required, significance of each key word should be given in e-form 1A.
Companies (Name Availability) Rules, 2011
In exercise of the power conferred by clause (a) of sub-section (1) of section 642 read with
sections 20 and 21 of the Companies Act, 1956 (1 of 1956), the Central Government has made
the Companies (Name Availability) Rules, 2011 which has not been notified and shall come
into force on such date as the Central Government may, by notification in the Official Gazette,
appoint.
The e-form 1A requires the applicant, duly authorized by promoters, to sign the same using
digital signature after obtaining a "Digital Signature Certificate" (DSC) issued by the Certifying
Authority in terms of the Information technology Act, 2000. The e-form is to be filed
electronically with the Registrar as per the Companies (electronic filing & Authentication of
Documents) Rules, 2006. For incorporation of a new company only Part A of the form is
required to be filled, whereas Part B along with fields 7 & 8 of part A are required to be filled
in case of change of name of the company. Earlier, the fee of Rs.500 payable for the purpose
can be remitted either electronically (by using a credit card or by electronic bank transfer) or by
cash/draft through challan generated electronically on submission of the e-form.
In the interest of stakeholders, with a view to improving service delivery time, Ministry has
decided to accept payments of value upto Rs.50,000, for MCA 21 services, only in electronic
mode w.e.f 27th March, 2011.
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For the payments of value above Rs. 50,000, stakeholders would have the option to either make
the payment in electronic mode, or paper challan. However such payments would also be made
in electronic mode w.e.f .1st October2011.
(ii) REVALIDATION OF NAME AVAILABILITY:
According to Rule 4A of the Companies (Central Governments) General Rules & Forms
(Third Amendment) rules 2007, the promoters of a company under a proposed name or a
company seeking to change its name may make an application in Form 1A, accompanied by a
fee of Rs. 500/- to the Registrar of Companies of the State in which the registered office of the
proposed company or of the company to be or is situated.
The registrar shall cause to examine the application as to whether the changed name or the
proposed name, as the case may be, is undesirable within the meaning of section 20. In case the
name is undesirable, he may reject the same or ask for resubmission of the application with
new names or calls for further information, ordinarily within 3 days of receipt of the
application.
The applicants shall be given only up to 2 opportunities for resubmission of
their proposal against the fee paid in the first instance for name availability after the
original application is filed.
However, the applicant will be at liberty to fresh application along with the prescribed fee.
Where the Registrar of the companies informs that the changed name or the proposed name, as
the case may be is not undesirable, such name shall be available for adoption for a period of
sixty days from the date the name is allowed.
The applicant may apply for an extension for retention of such name for a further period of
thirty days on payment of fifty percent of the fee prescribed for the application at the initial
stage, no further extension will be granted after expiry of ninety days from the date the name is
allowed in the first instance. The name allowed shall lapse after expiry of sixty or ninety days,
as the case may be, from the date it is allowed first.
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In order to have the name revalidated for a further period of 30 days, the company or the
promoters as the case may be, have to follow the following procedure :-
a) Make a fresh application to the same Registrar of Companies who had intimated the
company or the promoters, as the case may be, that the selected name is not undesirable, in e-
form 1A , electronically signed by the applicant by using his DSC, explaining therein the
reasons for not having availed of the name within the validity period.
b) The applicant must give the service request number (SRN) of the earlier confirmation of
availability of the proposed name.
c) Pay the application fee of Rs.250/- for retention of the name for next 30 days electronically
or through Cash/Draft as described earlier.
d) The application should be made before the last date of the validity period.
e) On receipt of approval from the Registrar of the Companies, the name may be availed during
the extended period of 30 days. The Registrar shall not grant second revalidation. Therefore,
before applying for revalidation, the company or the promoters, as the case may be, must
ensure that they are serious in availing the name.
( iii) DRAFTING & PRINTING OF MEMORANDUM OF ARTICLES:
After ascertaining name availability from the Registrar of Companies steps should be taken to
get the Memorandum & Articles of Association for the proposed company drafted & printed.
It should be noted that the main objects should match with the objects shown in e-form 1A.
These two documents are basically the charter and internal rules and regulations of the
Company. Therefore, it must be drafted with utmost care and with the advice of the experts and
the other object clause should be drafted in a very broader sense. A public company limited by
shares need not necessarily prepare & get its articles of association registered along with its
memorandum of association. In such a case, Table A of Schedule I to the Companies Act,
1956, shall apply. However, as a matter of practice, every company gets the articles prepared to
suit its individual requirements, and registered along with the memorandum of association.
Before getting the memorandum & articles printed, it is advisable to have their drafts vetted by
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the concerned Registrar of Companies to avoid unnecessary expenditure of time & money in
getting them printed & reprinted after incorporating modifications etc that may be suggested by
the Register. This would be specially desirable where promoters have no prior experience of
company formation. After the vetting by Registrar, the memorandum & articles may be printed
as required by Section 15 of the Act.
If the promoters plan to get the securities of the proposed company listed with one or more
designated stock exchanges, it is advisable to send the draft of the memorandum & articles of
association to those stock exchanges for their scrutiny & suggestion to the effect whether they
would like to have certain articles incorporated therein in compliance with provisions of Listing
Agreements of the Stock Exchanges.
(iv ) STAMPING & SIGNING OF MEMORANDUM & ARTICLES:
The Memorandum & Articles should be got printed & stamped by the appropriate State
Authority (Collector of Stamps) under the Indian Stamp Act. Thereafter the Memorandum &
the Articles should be signed by at least 7 subscribers.
Each subscriber to the memorandum shall write in his /her own hand, his /her father /husband's
name, occupation address & the number of shares subscribed for by him/her.
The signature of all the subscribers shall also be witnessed. The witness shall also sign & write
in his own hand, his name, his fathers name, occupation & address.
The fees payable to the Registrar at the time of registration of a new Company varies according
to the authorised capital of a Company proposed to be registered as per Schedule X to the Act.
Fees can be calculated by the MCA Portal.
( v) DATING OF MEMORANDUM & ARTICLES:
The memorandum & articles are then dated, but the date must be a date of stamping or later
than the date of their stamping & not in any event, a date prior to the date of their stamping.
(vi ) FILING OF DOCUMENTS & FORMS FOR REGISTRATION:
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E-form 1 is required to be filed as an application & declaration for incorporation of a company
having Memorandum, Articles of Association, and details of subscribers as attachments.
The following forms & documents ,which are prescribed under the Companies Act, 1956 & the
Companies (Central Governments) General Rules & Forms (Amendment) Rules, 2006 are
required to be prepared, signed & filed with the concerned Registrar of Companies for the
purpose of getting the company incorporated :-
Forms :
i) A statutory declaration in e-form 1 as prescribed in the Companies (Central government's)
General Rules & Forms (Amendment) rules, 2006 executed by an advocate of the Supreme
Court or of a High Court, an attorney or a pleader entitled to appear before the High Court, or a
secretary or a chartered accountant in whole time practice in India ,who is engaged in the
formation of the company ,or by a person named in the articles as a director, manager ,or
secretary of the company ,that all the requirements of the Act and the rules there under have
been complied with in respect of the company & matters precedent & incidental thereto, which
may be accepted by the Registrar as sufficient evidence of each compliance. It should also be
noted that details of all Companies in which directors are also directors should be given and the
names, addresses and other particulars of directors and promoters should be matched with theinformation provided in the DIN application form. [Section 33(2)].
The original duly filled in & signed e-form 1 on stamp paper is required to be sent to be
concerned ROC office simultaneously, failing which the filing will not be considered & legal
action will be taken.
ii)E-form 18 containing notice of situation or of the change in situation of registered office of
the company.
iii)E-form 32 containing prescribed particulars of directors including managing /whole time
director /manager/secretary ,if any and the changes among them or consent of candidate to act
as a managing director or director or manager or secretary of a company and/undertaking to
take and pay for qualification shares. E-form 32 is also required to be pre certified by company
secretary & chartered accountant or cost accountant (in whole time practice)
It is important to note that every person who is to be appointed as director must have directors
identification Number (DIN) .If the proposed director does not have DIN he/she must obtain
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the same before filing up the e-form 32. This can be obtained by making an application on the
MCA portal in form DIN-1.
Further scanned/digitized copy of the photograph and a written signed consent on a plain paper
of every person who is being appointed as a director are also required to be attached with the e-
form 32.
Following additional details are also required to be given in e-Form 32:
a) Name and CIN of all the companies in which they are directors
b) Names of partnership concerns in which they are partners
c) Names of proprietor concerns of them.
Documents :
i) A copy of the printed memorandum & articles of association duly stamped, signed & dated.
It may be noted that in case of a public limited company registration of articles of association
with the Registrar is optional, but in case of a private limited company, registration of articles
of Association with the Registrar is compulsory.
ii) Any agreement that the company on incorporation proposes to enter into with any person for
appointment as its managing director or whole time director or manager, as an attachment.
(Optional)
iii) General power of attorney on a non judicial stamp paper of the appropriate value as
applicable in the state signed by all the subscribers, in favors of one of them or any other
person, for making alterations etc on their behalf, in the memorandum and articles of
association & other documents /forms filed with the Registrar of Companies, if suggested by
the Registrar.
iv) Other agreement, if any, which has been stated in the Memorandum or Articles of
Association shall also be filed in the PDF file with the Registrar because in such cases the
agreement will form part of this basic document.
(vii ) PRE-CERTIFICATION:
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Form 18 & 32 are required to be pre certified by a company secretary or chartered accountant
or cost accountant in whole time practice.
(viii ) REGISTRATION & FILING FEE:
Promoters must make sure to remit to the registrar along with the above forms /documents, the
prescribed registration fee & fee for filing of forms as per the rates contained in Schedule X to
the Companies Act, 1956.
(ix ) MINIMUM PAID-UP CAPITAL:
Ensure that the minimum paid up capital is 5 lakh rupees or such higher paid up capital as may
be prescribed.
( x) SCRUTINY OF DOCUMENTS AND FORMS BY REGISTRAR:
On receipt of the aforementioned documents, office of the Registrar of Companies will
scrutinize them and if they are found complete in all respects, the Registrar will register the
company & generate a CIN No. If the Registrar finds any defect or deficiency in any of the
documents or forms, the attorney will be called by a communication to visit his office to
remove the defect or make up the deficiency, where after the Registrar will register the
company.
(xi ) ISSUE OF CERTIFICATE OF INCORPORATION BY REGISTRAR:
After the registration of the company, the Registrar will issue under his hand and seal of his
office, the Certificate of Incorporation in the name of the company and send it through post.
One may also take printout of the Certificate of Incorporation generated online. The date given
by the Registrar in the Certificate of Incorporation will be the date of incorporation of the
incorporation of the company, on which date the company will be considered to have come into
existence as a legal entity separate from its subscribers.
(xii ) CERTIFICATE OF COMMENCEMENT OF BUSINESS:
File a declaration in eForm 20 and attach the statement in lieu of the prospectus (schedule III)
OR
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File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.
On registration, a public company cant commence business so long it does not obtain
Certificate of Commencement of Business in accordance with section 149(2A) of the
Companies Act, 1956..
PROCEDURE FOR INCORPORATION OF A PRIVATE LIMITE D COMPANY
HAVING SHARE CAPITAL:
The procedure for the incorporation of a private limited company is same as that of a
public limited company with the following exception:-
i) The company must have a minimum paid up capital of 1 lakh rupees or such higher paid up
capital as may be prescribed.
ii) There must be at least 2 subscribers in place of 7.
iii) Registration of Articles of Association is compulsory.
iv) The provisions of Section 3 (1) (iii) of the Companies Act ,1956 should be included while
drawing up the memorandum & articles of association of a private limited company.
v) A Private Limited Company may commence its business activities from the date ofincorporation and it is not required to obtain Certificate of Commencement of business.
PROCEDURE FOR INCORPORATION O F COMPANY LIMITED BY GUARANTEE:
A company having the liability of its members limited by the memorandum of association to
such amount as the members may respectively undertake by the memorandum to contribute to
the assets of the company in the event of its being wound up, is known as company limited by
guarantee.
The procedure for incorporation of a company limited by guarantee is the same as the one
required to be followed for getting a public or a private limited company incorporated.
However, the following distinctive features in the case of a company limited by guarantee must
be noted:-
i) A company limited by guarantee may or may not have a share capital.
ii) A company limited by guarantee may be a public company or a private company.
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iii) According to sub-section (2) of Section 13 of the Companies Act, 1956 ,the memorandum
of association of a company limited by guarantee must state that the liability of its members is
limited.
The memorandum of association of a company limited by guarantee must also state that every
member of the company undertakes to contribute to the assets of the company in the event of
its being wound up while he is a member or within one year after he ceases to be a member for
payment of the debts & liabilities of the company, or of such debts & liabilities of the company
as may have been contracted before he ceases to be a member , as the case may be ,and of the
costs ,charges & expenses of winding up ,& for the adjustment of the rights of the
contributories among themselves, not exceeding specified amount.
iv) Sub-Section (2) of Section 27 of the Act lays down that the articles of a company limited by
guarantee shall state the number of members with which the company is to be registered.
v) Section 37(1) of the Act prohibits a company limited by guarantee and not having a share
capital from inserting any provision in its memorandum or articles or in any resolution
purporting to give any person a right to participate in the divisible profits of the company
otherwise than as a member.
vi) Sub-Section(2) of Section 37 lays down that in the case of a company limited by guarantee,
every provision in its memorandum or articles or in any Resolution purporting to divide the
undertaking of the Company into shares or interest shall be treated as a provision for a share
capital , not withstanding that the nominal amount or number of the shares or interest is not
specified thereby.
In the memorandum of association of a guarantee company , however, a clause stating the
amount of guarantee shall have to be interested in addition to the other necessary condition.
Similarly, in the articles of association of such a company ,articles stating the number of
member with which the company is proposed to be registered must be included.
The following procedural steps are required to be taken for getting a company limited by
guarantee registered:-
i) Paid up Capital:
In case company to be formed is a private company it must have a paid up capital of one lakhrupees and in case the company to be formed is a public company it must have a paid up capital
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of five lakh rupees or such higher paid up capital as may be prescribed. However, if the
company does not propose to have a share capital than this requirement is not required to be
complied with.
ii) Selection of name of the company & ascertaining its availability from ROC:
Make an application to the concerned registrar of companies in e-form 1A as prescribed in the
Companies (Central Governments General Rules & Forms (Amendment) Rules, 2006, for the
purpose & also pay the prescribed application fee of Rs.500 along with the application.
Earlier, the fee of Rs.500 payable for the purpose can be remitted either electronically (by using
a credit card or by electronic bank transfer) or by cash/draft through challan generated
electronically on submission of the e-form.
In the interest of stakeholders, with a view to improving service delivery time, Ministry has
decided to accept payments of value upto Rs.50,000, for MCA 21 services, only in electronic
mode w.e.f 27th March, 2011.
For the payments of value above Rs. 50,000, stakeholders would have the option to either make
the payment in electronic mode, or paper challan. However such payments would also be madein electronic mode w.e.f .1st October2011.
Select at least 6 names. The names of the proposed company are to be given in e-form 1A in
order of the promoters preference so that if the first name is not available, the Registrar may
consider the second name and if the second name also not available ,the Registrar may consider
the third name & the fourth name ,so that time in referring back & forth may be saved . The
proposed names should not be identical with, or too closely resemble, the names by which a
company in existence has been previously registered.
Before selecting the names, the promoters may be well advised to refer to the guiding
instructions prescribed by Ministry of Corporate Affairs (earlier the department of Corporate
Affairs) for making a name available for registration. It must also be ensured that the proposed
names do not violate the provisions of Emblems & names (Prevention of Improper Use) Act,
1950.
iii) Drafting & Printing of Memorandum and Articles of Association:
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On receipt of name availability from the Registrar of Companies, get the memorandum and
articles of association of the proposed company drafted by competent professional.
If the company does not propose to have a share capital and it is to be incorporated as a public
company, Table C in Schedule I to the Act has to be taken into consideration while drafting the
memorandum & articles of association.
If the company proposes to have a share capital & it is to be incorporated as a public company,
Table D in schedule I to the Act has to be taken into consideration while drafting its
memorandum & article of association.
Before getting the memorandum and articles printed, it is advisable to have the drafts vetted by
the Registrar of Companies to save time, money & effort.
iv ) Stamping and signing of Memorandum & Articles:
Get the memorandum and articles stamped by the appropriate State authority (Collector of
Stamps) under the Indian Stamp Act.
After being stamped, get the memorandum and articles signed by at least 2 subscribers in case
of a private company and by at least seven subscribers in case of a public company. Each
subscriber shall write in his/her own hand ,his/her name ,his /her father/husbands name
,occupation ,address and the number of shares subscribed for by him/her , if the company has a
share capital. At least 1 person shall witness the signatures of all the subscribers. The witness
shall also sign and write in his/her own hand his /her name, his/her fathers name, occupation
and address.
Under the system of MCA21, payment of stamp duty through the portal of the Ministry of
Corporate Affairs (MCA) is yet to be established. This facility shall be available only after the
entire system of payment of Stamp Duty through the MCA portal is agreed to by all the State
Governments. Until such time, the MOA and AOA are required to be printed, stamped and
physically signed by all subscribers and submitted physically at ROC office. A scanned copy
of the duly stamped and executed MOA and the AOA is also required to be attached with e-
form 1 and submitted electronically.
v ) Dating of Memorandum and Articles:
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Thereafter the memorandum and articles will be dated. This date must be a date of stamping or
later than the date of stamping and not, in any event, a date prior to the date of the stamping.
vi ) Filing of Forms and Documents with Registrar:
Forms:
a) E-form 18 containing notice of situation or change in situation of registered office of the
company.
b) E-form 32 containing prescribed particulars of directors including managing /whole time
director /manager/secretary, if any and the changes among them or consent of candidate to act
as a managing director or director or manager or secretary of a company and /or undertaking to
take and pay for qualification shares. E-form 32 is also required to be pre-certified by company
secretary or chartered accountant or cost accountant ( in whole time practice)
c) A statutory declaration in e-form 1 as prescribed in the Companies(central governments)
General Rules and forms (Amendment) Rules 2006 executed by an advocate of the Supreme
Court or High Court or a secretary or a chartered accountant in whole time practice in India,
who is engaged in the formation of the company ,or by a person named in the articles as a
director ,manager ,or secretary of the company ,that all the requirements of the Act and the
Rules there under have been complied with in respect of registration of the company and
matters precedent and incidental thereto.
The original duly filled in and signed e-form 1 on stamp paper is required to be sent to the
concerned ROC office simultaneously, failing which the filing will not be considered and legal
action will be taken.
Documents:
Prepare, get signed & file the following documents with the Registrar of the Companies for
getting the proposed company registered by way of e-filing:
a) Stamped, signed and dated copy of the memorandum of association
b) Stamped, signed and dated copy of the articles of association.
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c) Any agreement that the company on incorporation proposes to enter into with any person,
for appointment as its managing director or whole time director or manager.
d) General power of attorney on a non judicial stamp paper of the appropriate value as
applicable in the State, signed by all the subscribers, in favors of one of them or any other
person, for making alterations etc on their behalf in the memorandum & articles of association
& other documents/forms filed with the Registrar of Companies ,if suggested by the Registrar.
e) Copy of e-form 1A and name approval letter obtained from the MCA. If name approval
letter is not received than, Service Request Number of e-form 1A filed with the Registrar of the
Companies.
In case of documents which are required to be filed on non judicial stamp paper/ stamped
documents, the company shall submit such documents accordingly in the physical form, in
addition to their submission in electronic form.
vii ) Registration and filing fee:
Along with the above detailed documents and Forms, pay the registration fee and filing fee for
documents and forms as per the rates prescribed in Schedule X to the Companies Act, 1956.
The fee is to be paid electronically as per the mode of payment discussed earlier.
viii ) Scrutiny of forms and documents by registrar:
On receipt of the aforementioned documents and forms, the office of the registrar of the
companies will scrutinize them and if they are found complete in all respects, the Registrar will
register the company and allot CIN No. If the registrar finds any defect in any of the documents
or forms, he will call the attorney by a communication to visit his office and remove the defects
or make up the deficiency. Thereafter the registrar will register the company.
A Certificate of Incorporation will be issued by the registrar of Companies under his hand and
seal of his office and sent through post to the company concerned.
One may take printout of the certificate of Incorporation which is generated online.
The date given by the Registrar in the Certificate of Incorporation will be the date of
incorporation of the company, on which date the company will be considered to have come into
existence as a legal entity independent of its members.
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PROCEDURE FOR INCORPORATION OF COMPANY FOR CHARITABLE AND
OTHER PUBLIC UTILITY PURPOSES WITHOUT ADDITION TO NAME THE
WORDS LIMITED OR PRIVATE LIMITED
The issue of license and Incorporation of companies to pursue charitable and other prescribed
objects with limited liability without the addition to its name of the word Limited or the
words Private Limited are regulated by Section 25 of the Companies Act, 1956 and
regulations, 1956 made by the Central government under Section 25 (1) and 609 (2) of the Act.
Pursuant to the provisions of Section 25(1) and the Regulations, an association, desirous of
being incorporated as a company with limited liability without the addition to its name of the
word limited or the words " Private Limited" shall take the following procedural steps for
securing a License under Section 25 of the Companies Act, 1956 and for getting it registered
under the Act:
1) To select at least 6 names in order of their preference, for obtaining availability of one of
those names for adoption for the proposed company.
2) To make an application to the Registrar of the Companies of the State in which the
registered office of the proposed company is to be situated for seeking name availability. The
application shall be in e-form No 1-A as prescribed in the Companies (Central governments)
General Rules and forms (Amendment) Rules, 2006 and shall be accompanied by a fee of
Rs.500 to be paid electronically.
3) Rule 4-A of the said rules advises the Registrar of Companies to furnish the required
information to the applicants, ordinarily within 3 days of the receipt of the application.
4) On receipt of the name availability from the registrar of the Companies to get the
memorandum and articles of association for the proposed company suitably drafted. The
memorandum shall be in the form specified in Annexure I to the Companies Regulations, 1956,
or in the form as near thereto as the circumstances admit.
Before getting these documents printed, it is advisable to have their drafts informally vetted by
the Regional director, Department of Company Affairs, at Mumbai, Kolkata, Noida or Chennai,
in whose region the registered office of the proposed company is to be situated.
5) To make an application to the regional director, for the grant of a license under Section 25 ofthe Companies Act, 1956 in e-form 24A. A
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Along with e-form 24A, in case of new association, for issue of license u/s 25, the following
documents are also required to be attached:
- Memorandum of Association (MOA)
- Articles of Association (AOA)
- Declaration as per Annexure V of Companies Regulations, 1956.
- Declaration by Advocate of Supreme Court or High Court, attorney or pleader entitled to
appear before a High Court, or a company secretary or chartered accountant in whole time
practice that the MOA & AOA have been drawn in conformity with provisions of the Act.
- Details of the promoters and of the proposed directors of the company.
- A list of the names, addresses, descriptions & occupations of its director and of its manager or
secretary ,if any together with the names of the companies , associations and other
institutions ,in which the directors of the applicant company are directors or hold responsible
positions ,if any with the descriptions of the positions so held.
- Statement of the grounds on which the application is made.
- If any of the above documents is not in English or Hindi, then a translation of such document
in English or Hindi.
Further it is to be noted that in case of application by a new association for issue of license
following attachments are required to be submitted at the concerned regional director office on
the stamp paper simultaneously of filing an application, failing which the filing will not be
considered and legal action will be taken.
a) Declaration as per Annexure v of Companies Regulations, 1956.
b) Declaration by advocate of Supreme Court or High Court, attorney or pleader entitled to
appear before a High Court, or a company secretary or chartered accountant in whole time
practice that the MOA & AOA have been drawn in conformity with the provisions of the Act.
6) According to Section 25 of the Act ,the applicants have to prove to the satisfaction of the
regional director that an association is already in existence or is about to be formed as a limited
company for promoting commerce, art ,science, religion charity or any other useful object andthat the association intends to apply its profits ,if any ,or other income ,for promoting its objects
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and its prohibits the distribution of any dividend to its members.
7) As required by regulation 4 of the said regulations, the application to the regional director
shall be accompanied by the following attachments namely:-
i) The memorandum and articles of association of the proposed company.
ii) a declaration on non judicial Stamp paper of the prescribed value (also required to be
submitted physically at the concerned regional director office simultaneously of filing an
attachment with application) by an advocate of Supreme Court or of a High court, an attorney
or a pleader authorized to appear before a High Court or a Secretary ,or a Chartered Accountant
,in whole time practice in India ,to the effect that the Memorandum and Articles of Association
have been drawn up in conformity with the provisions of the Act and that all the requirements
of the Act and the rules made there under have been duly complied with in respect of
registration or matters incidental or supplemental thereto.
iii) a list of the names ,descriptions addresses and occupations of the promoters (where a firm
is a promoter ,of each partner in the firm) as well as of the members of the proposed Board of
directors ,managers or secretary together with the names of companies ,associations and other
institutions ,in which such promoters ,partners and members of the proposed Board of Directors
are directors or hold responsible positions ,if any, with descriptions of the positions so held.
iv) an estimate of the future annual income & expenditure of the proposed company, specifying
the sources of the income and the objects of the expenditure.
v) a statement giving a brief description of the work , if any ,already done by the association
and of work proposed to be done by it after registration in pursuance of Section 25 0f the Act.
vi) A statement specifying briefly the grounds on which the application is made.
vii) a declaration on non-judicial Stamp paper of the prescribed value (also required to be
submitted physically at the concerned regional director office simultaneously of filing as
attachment with application) by each of the persons making the application, in the Form set out
in Annexure V to the Companies Regulation, 1956 or in a form as near thereto as the
circumstances admit; and
viii) A receipted treasury challan or any other electronic mode of payment as discussed earlier
evidencing that the necessary fees have been deposited.
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8) Regulation 9 of the said regulations lays down that if any of the above mentioned documents
is not in English or Hindi, a translation thereof either in English or Hindi, certified to be correct
by any director of the proposed company shall be furnished to the Regional Director together
with the documents.
9) Regulation 10 makes it mandatory that simultaneously with the application made to the
Regional Director, the applicants shall furnish to the Registrar of Companies of the State in
which the registered office of the proposed company or the company is to be or is situated, a
copy of the application, and each of the documents and translations annexed to the application.
10) Pursuant to regulation 11 of the said regulations ,the applicants shall ,within a week from
the date of making the application to the Regional Director ,publish at their own expense, a
notice of the application made to the Regional director and a certified copy of that notice as
published ,shall be sent forthwith to the regional director.
11) The aforesaid notice shall be in the form set out in Annexure II to the said Regulations or in
a form as near thereto as circumstances admit and shall be published at least once in a
newspaper in a principal language of the district in which the registered office of the proposed
company or the company is to be situated or is situated, and circulating in that district, and at
least once in an English newspaper circulating in that district.
12) The Regional Director shall, after considering the objections if any, received by it from the
Registrar of Companies or from any other person in response to the published notice, within the
time fixed therefore in the notice aforesaid and after consulting any authority, Department of
Ministry, as it may ,in its discretion ,decide ,determine whether the license should or should not
be granted.
13) The Regional director may direct the company to insert its memorandum, or in its articles,
or partly in the one and partly in the other, such conditions of the license as may be specified
by the Regional Director in this behalf.
14) The said Regulations permit a company , in respect of which a license has been issued
under Section 25 of the Companies Act , to amend its memorandum of association in
accordance with law so as to enable the company to pay in good faith ,with the previous
approval of the Central government ,reasonable and proper remuneration to any of its members
in return for any services ,actually rendered to it not as a member and thereupon the licenseissued to the said company shall stand modified accordingly.
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15) On receipt of the copy of the application, the Registrar of Companies gets the application
and the accompanying documents thoroughly scrutinized in his office to ensure that they are in
conformity with the relevant provisions of the Act & Regulations.
16) The Registrar of the Companies may list out modifications, that he considers necessary in
the draft Memorandum of Association and Articles of Association and forward the same to the
Regional director. He may also recommend to the Regional director about the grant of their
license or otherwise of the proposed company based on his knowledge of the promoters of the
proposed company.
17) The Registrar may also report to the Regional Director whether there is any other company
in existence with similar objects in or near the place where the registered office of the proposed
company will be situated and whether the issue of a license to the proposed company is really
necessary.
18) The Regional Director may, make a reference to the District Magistrate or the State
Government and the public at large, and invite their objections, if any , to the issue of a license
to the proposed company.
19) Having received the views of the Registrar, the State Government and also objections from
the public, if any, the Regional Director takes a decision whether or not the License applied for,
should be granted.
20) To publish a notice in the form set out in Annexure II of the Companies Regulations, 1956,
or in the form as near thereto as circumstances admit, in the principal language of the district in
which the Registered Office of the proposed company is to be situated and circulating in that
district, and at least once in English newspaper circulating in that district.
21) The Regional Director, being satisfied on all accounts, may by a license, direct that the
association may be registered as a company with limited liability without the addition to its
name the word Limited" or the words "Private limited"
22) The Regional Director may also direct the company to insert in its memorandum or articles
or partly in the one and partly in the other, such conditions of the License as may be specified
by him in that behalf. The association may there upon be registered accordingly and on
registration shall enjoy all the privileges and be subject to the provisions of the Act and shallalso be subject to the obligations of limited companies
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23) After obtaining the License, to get the memorandum and articles, as approved by the
Regional Director, printed and to ensure that the conditions approved by the Regional Director
are incorporated therein.
24) File the following documents electronically with the Registrar of Companies for getting
the proposed company registered.
a) Stamped copy of the memorandum and articles of association. It shall be printed and divided
into paragraphs numbered consecutively and shall be signed by each subscriber, who shall
add ,his address ,description and occupation ,if any in the presence of at least one witness ,who
shall also sign and shall likewise add his address ,description and occupation, if any ( section
15 0f the companies Act-1956) ( also required to be submitted physically at ROC
simultaneously while filing electronically)
b) Stamped & Signed copy of the Articles of Association (also required to be submitted
physically at ROC simultaneously while filing electronically)
c) e-form 1 duly executed (also required to be submitted physically at ROC simultaneously
while filing electronically)
d) e-form 18 (this form may be filed within 30 days of the incorporation)
e) e-form 32 (this form may also be filed within 30 days of incorporation)
f) Any agreement that the company on incorporation proposes to enter into with any person for
appointment as its managing director or whole time director or manager.
g) Copy of e-form 1A and name availability letter obtained from ROC.
h) Power of Attorney on a non judicial Stamp paper of the requisite value signed and executed
by all the subscribers in favor of one of them or any other person for making necessary
corrections, on their behalf, in the memorandum and articles and other papers filed with the
Registrar of Companies.
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25) Along with the above detailed documents to pay the document filing fee as per the rates
prescribed in Schedule X to the Companies Act, 1956 and as per the mode of payment
discussed earlier.
26) The Registrar of Companies will thereupon scrutinize the documents filed for registration
and if they are found in order ( in the event of there being any defect ,the joint attorney will be
called by a communication to visit the Registrar's office to remove the defect) the Registrar will
register the company and allot CIN.
27) A Certificate of Incorporation will be issued by the Registrar under his hand and Seal of his
office and sent to the Company through Post A printout may be taken of the online generated
Certificate of Incorporation. The date given by the Registrar in the Certificate will be the date
of incorporation of the company, on which date the company will be considered to have come
into existence as a legal entity separate from its subscribers.
PROCEDURE FOR INCORPORATION OF EXISTING ASSOCIATION AS LIMITED
COMPANY WITHOUT ADDITION TO NAME THE WORDS LIMITED OR
"PRIVATE LIMITED"
As mentioned earlier the issue of license & incorporation of companies with limited liability
without the addition to its name of the word " Limited" or the words " Private Limited" areregulated by Section 25 of the Companies Act ,1956 and regulations 3 to 6 and 10 to 14 of the
Companies Regulations, 1956.
Regulation 3 of the Companies Regulations, 1956 lays down that any association (hereinafter
referred to as an "association " or as the proposed company") which is desirous of being
incorporated as a company with limited liability without the addition to its name of the word "
Limited or the words Private Limited shall make an application in writing to the Regional
Director at Mumbai/Kolkata/Noida/Chennai for a license under Section 25 0f the Companies
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Act, 1956.
According to Regulation 4 of the said Regulations, the application shall be accompanied by the
following documents namely:-
i) The Memorandum and Articles of Association of the proposed company.
ii) a declaration on non-judicial Stamp paper of the prescribed (also required to be submitted
physically at the concerned regional director office simultaneously of filing as attachment with
application) value by an advocate of the Supreme Court or of a High Court , an attorney or a
pleader authorized to appear before a High Court or a Secretary , or a Chartered Accountant ,in
whole time practice in India ,to the effect that the Memorandum and Articles of Association
have been drawn up in conformity with the provisions of the Act and that all the requirements
of the Act and the Rules made there under have been duly complied with in respect of
registration and matters incidental or supplemental thereto.
iii) a list of the names, descriptions ,addresses and occupations of the promoters (where a firm
is a promoter ,of each partner in the firm) as well as of the members of the proposed Board of
Directors ,together with the names of companies ,associations and other institutions, in which
such promoters ,partners and members of the proposed Board of Directors are directors or hold
responsible positions, if any, with descriptions of the positions so held.
iv) As the association is one which is already in existence, the following documents submitted
by the management thereof to its members , for each of the two complete financial years
immediately preceding the date of the application or where the association has functioned only
for one such financial year ,for such year.
a) The accounts
b) The balance sheets and
c) The reports on working of the association as submitted to the members of the association.
v) A statement showing in detail the assets (with estimated value thereof) and the liabilities of
the association as on the date of the application or within seven days of that date.
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vi) An estimate of the future annual income and expenditure of the proposed company,
specifying the sources of the income and the objects of the expenditure
vii) A statement giving a brief description of the work , if any ,already done by the association
and of work proposed to be done by it after registration in pursuance of Section 25.
viii) A statement specifying briefly the grounds on which the application is made and
ix) A declaration on non- judicial stamp paper of the prescribed value (also required to be
submitted physically at the concerned regional director office simultaneously of f