INCORPORATION OF COMPANY IN INDIA

INCORPORATION OF COMPANY IN INDIA

1.      What is Company?

As per Companies Act 2013, Company means a company incorporated under this Act or under any previous company law (For e.g. Companies Act 1956)

2.      Type of Companies

1)      Private Company

2)      Public Company

3)      One Person Company

4)      Foreign Company

3.      What are the types of company on basis of liability?

1)      Company having unlimited liability

2)      Company having Limited liability

1. Limited by guarantee
2. Limited by shares

 

4.      What is Private Company?

“Private company” means a company having a minimum paid-up share capital of Rs. 1 Lac, Restricted transfer of share, Minimum no. of member & director 2 and Maximum members is to be 200. Also prohibits any invitation to the public to subscribe for any securities of the company.

5.      What is Public Company?

Public company means a company which is not a private company and has minimum paid up capital of Rs. 5 Lac. Minimum no. of member is to be 7 & Minimum director required 3.

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.

6.      What is One Person Company?

One Person Company means a company which has only one person as a member. (For Detail please refer our earlier blog “Decoding One Person Company”)

7.      What is Foreign Company?

Foreign company means any company or body corporate incorporated outside India which has a place of business in India whether by itself or through an agent, physically or through electronic mode and conducts any business activity in India in any other manner.

8.      Steps to register Private Company

1. Obtain Digital Signature Certificate (DSC)
2. Direction Identification Number (DIN)
3. Name Approval
4. Drafting of Memorandum of Association (MOA) & Article of Association (AOA).
5. Filling of Incorporation Form
6. Certificate of Incorporation (COI).

A.         Obtain Digital Signature Certificate

Digital Signature Certificate (DSC) is electronic form of signature or paperless signature issues by Certifying Authority in India. All filings done by the Companies/Individual under MCA are required to be filed with the use of Digital Signatures by the person authorised to sign the documents.

Form: – Certifying Authority DSC Form.

B.         Director Identification Number

Director Identification Number (DIN) is unique identification number issued to ever existing director or every individual intending to be director of a company by Ministry of Corporate Affairs.

Form No.: – DIN1

C.         Name Approval

Before registering a new company, Promoters needs to select, in order of preference, a few suitable names, not less than four, indicative of the main objects of the company. Ensure that the name does not resemble the name of any other company already registered.

Form No.: – 1A

D.        Drafting of Memorandum of Association & Article of Association

Memorandum of Association (MOA) & Article of Association (AOA) are the charter documents of the company. MOA contains the object of the company along with other necessary information like register office, Name of the company etc. Whereas AOA contains rules & regulation governing the working of Company. Each promoters need to sign Subscriber sheet in its own hand writing along with other information like Occupation, Address, Number of Share subscribed.

E.         Filling of Incorporation form

After completion of all the above mentioned 4 Steps, Promoters need to file necessary forms for Incorporation within reasonable time along with filling fee and stamp duty for registration of new company.

Form No.: – 1, 18 & 32.

F.         Obtaining Certificate of Incorporation

If the registrar is satisfied that all the requirements have been complied with by the companies, it will register the company and issue a Certificate of Incorporation of the company. The date mentioned in the certificate is the date of incorporation of the company.

9.       Documents Required for Registration of Company*

a)      Two recent color Photograph (Passport Size)

b)      Current Address Proof

c)       Identity Proof

d)      Qualification

e)      Email ID

f)       Mobile No.

g)      Current Occupation

h)      Affidavit for DIN Application

i)        Address to be registered with address proof

j)        In case of Private Limited, Affidavit by all director for not accepting public deposit.

* All the above mentioned document & Information required in case of Individual.

* For a Foreign citizen/NRI copy of passport is must

* All document must be self-attested

A.         Steps to register Public Company

Additional steps to be taken for formation of a Public Limited Company:

• To obtain Commencement of Business Certificate after incorporation of the company. And to obtain that certificate public company has to make following compliance: –

1. File a declaration in eForm 20 and attach the statement in lieu of the prospectus(schedule III) OR
2. File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.

B.         Steps to register One Person Company

Till November 2013, Process to register one person company is yet to be notified by the Ministry of Corporate Affairs. However for details on One Person Company, Please follow our earlier Blog “Decoding – One Person Company”.

C.         Steps to register Foreign Company in India

1. To incorporate a foreign company in India which is already register outside India following are the steps to be followed: –

a)      Form No.44 duly filled in;

b)      A certified true copy of the MOA and AOA or charter or statute or any other instrument which constitutes or defines the constitution of the company;

If the instrument mentioned above is not in English language, then give a translation of it in English language which must be certified by the following persons: –

a)      If the translation is made outside India, then it shall be authenticated by the signature and seal, if any, of the official having custody of the original or of a Notary (Public) of the  country  where the company is incorporated;

b)      If the translation is made within India, then by an advocate, attorney or pleader of any High Court or by an affidavit of some person who has an adequate knowledge of both the language in the opinion of the Registrar.

1. If the registrar is satisfied that all the requirements have been complied with by the foreign company, it will register the company and issue a Certificate of Incorporation of the company as Foreign Company.

D.        POST INCORPORATION FORMALITIES

(a) Company Registration with the Income-tax (PAN Application)

(b) If the proposed business is related to import/export of service/goods, then require registration of IEC with DGFT

(c) If the proposed business is a manufacturing business, then there are other enactments that would be applicable. (For eg. Excise, VAT etc.)

(d) If the proposed business is a Service oriented business, the applicable laws would be different. (For eg. Service Tax)

10.          ACTIONS TO INCORPORATE A COMPANY IN INDIA

(a) Decide the proposed activity of the Company.

(b) Decide the name of the Company. The name should reflect the purpose for which the company is incorporated (i.e.) the proposed activity / business of the Company should get reflected in the name.

(c) Decide who would be the initial subscribers to the memorandum.

(d) Decide on who would be the first directors.

You can refer to “Fee Calculator” link on the MCA website for the ROC fees, to know the exact cost for Company formations.

To download the company formation forms, please click on the following link “Company Registration Forms”.

Decoding – One Person Company (OPC)

The much-awaited Companies Bill, 2013 got the President’s assent on 29 August 2013 and has led to introduction of new rules to improve corporate governance, raise levels of transparency and further strengthen regulations for corporates. The 2013 Act has made significant changes to the provisions of law and has introduced several new concepts as well.

OPC has been defined in section 2(62) of the 2013 Act as a company which has only one person as a member.

Basics of a One Person Company :

1. OPC needs to be registered as a private company with one member and at least one director.
2. OPC would be referred to as a separate legal entity, the liability of the shareholder/director bein limited.
3. Adequate safeguards in case of death/disability of the sole person should be provided through appointment of another individual as nominee director. 
4. Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from other companies.

 

How to set up a One Person Company :

As the name suggests, a one person company has only one shareholder, who may also be the director. However, it can have more than one director, and up to a maximum of 15.

1. Check with the registrar of companies for the availability of a name for your company. The name will carry a suffix, ‘OPC’, similar to the manner in which a private company uses the suffix ‘pvt ltd’.
2. Assign a ‘director identification number’ to each director and apply for digital signatures for all of them
3. The memorandum of an OPC shall indicate the name of another person, with his prior written consent, who shall, in the event of the subscriber’s death or his incapacity to contract become the member of the company.
4. The written consent of such person shall also be filed with the registrar of companies at the time of incorporation of the OPC along with its memorandum and articles.
5. The words ‘‘One Person Company’’ must be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved. [Second proviso to Section 12(3)]
6.  A person can incorporate a maximum of 5 OPCs. [Rule 2.1(2)]
7.  Only natural persons can incorporate an OPC. Also, the person incorporating an OPC must be an Indian citizen who has stayed in India for at least 182 days during the immediately preceding one financial year. [Rule 2.1(1)

Once the paperwork is complete, the registrar will issue a certificate of incorporation within seven days of receiving the documents, after which you can start the business.

Conversion of an OPC to a Private Limited Company :

1. OPC can get itself converted into a private or public company after increasing the minimum number of members and directors to two or minimum of seven members and three directors as the case may be, and by maintaining the minimum paid-up capital as per requirements of the 2013 Act for such class of company and by making due compliance of section 18 of the 2013 Act for conversion. [Rule 2.4(6)]
2. The Rules prescribe certain circumstances when an OPC will be mandatorily required to convert into a private or public company.In terms of Rule 2.4, where 

The Paid up share capital > Rs. 50 lacs or

Average Annual Turnover for the preceding 3 consecutive years > Rs. 2 crores 

it will not be entitled to continue as an OPC. Such OPC shall be required to convert itself into either a private company or a public company in accordance with the provisions of section 18 of the 2013 Act:

1.  within 6 months of the date on which its paid up share capital is increased beyond 50 lakh rupees; or
2.  the last day of the period immediately preceding three consecutive financial years during which its average annual turnover exceeded 2 crore rupees; or
3.  the close of the financial year during which its balance sheet total exceeded 1 crore rupees, as the case may be,. The OPC is required to alter its memorandum and articles by passing an ordinary or special resolution in accordance with sub-section 5 (3) of section 122 of the 2013 Act to give effect to the conversion and to make necessary changes incidental thereto.

Benefits of an OPC

1. An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship.
2. An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. Also, since it will have lesser compliance burden compared to private companies, it can be preferred mode of business for small industries.
3. An OPC is exempt from certain procedural formalities, such as conducting annual general meetings, general meetings and extraordinary general meetings. No provisions have been prescribed on holding board meetings.. There is, however, no relief from the provisions on audits, financial statements and accounts, which are applicable to private companies..
4. The biggest advantage of a one person company is that its identity is distinct from that of its owner. Therefore, if the firm is embroiled in a legal controversy, the owner will not be sued, only the company will.
5. Another advantage is limited liability.Since the company is distinct from that of its owner, the personal assets of the shareholders and directors remain protected in case of a credit default. However, a proprietorship offers no such advantage.

Conclusion

While the idea of an OPC looks promising, doing business in OPC structure may effectively result in higher tax implications on the businesses as the rate of taxation on companies is higher. Also, since a company is a separate legal entity, the distribution of dividend by an OPC may attract dividend distribution tax. Sole proprietors, on the other hand are taxed at the rates applicable to individuals, i.e., differential rates for different slabs of income.

How about sole proprietorship ?

In contrast to a company, a proprietorship is easy to set up. The paperwork involved is minimal since it is limited to a few business-specific approvals. Of course, the risk in a proprietorship is higher as the owner is personally responsible for the business.

As far as the taxation is concerned, the income generated from the business is clubbed with the personal income. Therefore, the tax liability would depend on the slabs in which it falls. “In some cases, a proprietorship can be a tax-inefficient way of doing business.