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March 04, 2017

Procedure for Formation of Company in India




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Formation or incorporation of A Company – For the formation of a company, a company passes through the following three stages :-
1. Promotion Stage: The stage of conceiving an idea and its working is termed as promotion of a company. The person involved in this task is termed as “Promoter”. There are certain important decisions which are taken before the formation of the company. There first important matter to decide could be either :-
(1) To start a new business altogether, or
(2) To acquire an already running business, if it is available at considerable attractive terms and conditions. Some time it does happen that some people may start a business without having sufficient knowledge or sufficient experience or sufficient funds and later on they decide to dispose of that business to avoid huge losses. In such a case it may be better to acquire a running business with favorable terms and conditions and it may prove to be a good decision.
The other important matters be decided before the formation of the company could be the decision regarding the product to be produced, the size of the company, the capital involved in the project, the sources of the capital and whether it shall be a Private Company or a Public Company.
Any of the above decisions i.e., to start a new business altogether or to acquire an already running business, along with the other matters shall have to be taken by some person or persons who are at the helm of the affairs. They are called PROMOTERS.


Where it has been decided to form a Private Company 2 persons and where it has been decided to form a Public Company at least 7 persons shall subscribe their names to a Memorandum of Association and they shall also comply with the other formalities in respect of the registration of the company under the Indian Companies Act, 1956.
Document to be filed with the Registrar: It is desirable to ascertain from the Registrar (Registrar of the State in which the Registered office of the company shall be situated) of the companies that whether the proposed name of the company shall be approved if registration is sought for a new company with such name.
Where already a company with such name is existing, it shall not be allowed by the Registrar, because tow companies with the similar name cannot be registered.
But if he says yes, because no other company is registered with that name, an application for the registration of the company should be presented to the Registrar of the State in which the Registered office of the company shall be situated. The appl9ication along with necessary fee shall be presented along with the following documents :
(1) The Memorandum of Association.
(2) The Articles of Association, if any which should be signed by the subscribers to the Memorandum of Association.
(3) Any agreement with the individual persons who are proposed to e appointed as Managers, Directors or Managing Director of the company.
(4) A statement of the nominal capital of the Company.
(5) A notice of address of the registered office of the company.
(6) A list of the Directors who have agreed to become the first Directors of the company along with their consent to act as Directors and to take up the qualification shares of the company in the case of a public company.
(7) A declaration that all the requirements of the Companies Act have been complied with, shall also be submitted, which shall be signed by one nay of the following persons :
(i) An advocate of the Supreme Court or High Court, or
(ii) An attorney or a pleader entitled to appear before a High Court, or
(iii) A Secretary or a Chartered Accountant in whole time practice in India, who is engaged in the formation of the company, or
(iv) A person named in the Articles as a Directors, Manager or Secretary of the company.
Where the Registrar of Companies is satisfied that all the requirement have been complied with, he will register the company and enter the name of the company in the Register of Companies.
2. Incorporation Stage : Where the Registrar of Companies is satisfied that all the requirements have been complied with, he will register the company, and enter the name of the company in the Register of Companies.
When a company is registered and its name in entered in the register of companies, the Registrar will issue a Certificate of Incorporation in which he certifies that the company is incorporated under his hand and in the case of a limited company that the company is a Limited Company.

Legal FAQs -Effects of Registration / Incorporation of a Company

When a company is registered and a Certificate of Incorporation is issued by the Registrar, it shall have the following effects :
  • The company shall become s Separate Legal Entity from the date mentioned on the Certificate of Incorporation, which is considered as date of birth of the company.
  • The Company acquires Perpetual Succession. The members may come, members may go, but it goes for ever.
  • The company becomes the owner of its property and the Promoters of Shareholders have the right to share in the profits of the company.
  • The company can sue and can be sued in its own name.
How to Form a Company – Steps Effects of Registration and Incorporation of A Company Distinction Between A Public Company And a Private Company
Company Law – Tips for Lawyers and Layman

Legal FAQs -Distinction Between A Public Company And a Private Company

Distinction Between A Public Company And a Private Company – Following are the main points of difference between a Public Company and a Private Company :-
1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5,00,000.
2. Minimum number of members : Minimum number of members required to form a private company is 2, whereas a Public Company requires at least 7 members.
3. Maximum number of members : Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company.
4. Transerferability of shares : There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association , whereas there is no restriction on the transferability of the shares of a Public company
5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.
6. Number of Directors : A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have at least 3 directors.
7. Consent of the directors : There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company.
8. Qualification shares : The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company .
9. Commencement of Business : A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it.
10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully paid shares, Whereas a Private Company can issue Share Warrants against its fully paid up shares.
11. Further issue of shares : A Private Company need not offer the further issue of shares to its existing share – holders, whereas a Public Company has to offer the further issue of shares to its existing share – holders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing share – holders in the general meeting of the share – holders only.
12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.
13. Quorum : The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.
14. Managerial remuneration : Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.
15. Special privileges : A Private Company enjoys some special privileges, which are not available to a Public Company.
How to Form a Company – Steps
Effects of Registration and Incorporation of A Company Distinction Between A Public Company And a Private Company Company Law – Tips for Lawyers and Layman 

How To Form A Company

Formation or incorporation of A Company – For the formation of a company, a company passes through the following three stages :-
1. Promotion Stage: The stage of conceiving an idea and its working is termed as promotion of a company. The person involved in this task is termed as “Promoter”. There are certain important decisions which are taken before the formation of the company. There first important matter to decide could be either :-
(1) To start a new business altogether, or
(2) To acquire an already running business, if it is available at considerable attractive terms and conditions. Some time it does happen that some people may start a business without having sufficient knowledge or sufficient experience or sufficient funds and later on they decide to dispose of that business to avoid huge losses. In such a case it may be better to acquire a running business with favorable terms and conditions and it may prove to be a good decision.
The other important matters be decided before the formation of the company could be the decision regarding the product to be produced, the size of the company, the capital involved in the project, the sources of the capital and whether it shall be a Private Company or a Public Company.
Any of the above decisions i.e., to start a new business altogether or to acquire an already running business, along with the other matters shall have to be taken by some person or persons who are at the helm of the affairs. They are called PROMOTERS.
Where it has been decided to form a Private Company 2 persons and where it has been decided to form a Public Company at least 7 persons shall subscribe their names to a Memorandum of Association and they shall also comply with the other formalities in respect of the registration of the company under the Indian Companies Act, 1956.
Document to be filed with the Registrar: It is desirable to ascertain from the Registrar (Registrar of the State in which the Registered office of the company shall be situated) of the companies that whether the proposed name of the company shall be approved if registration is sought for a new company with such name.
Where already a company with such name is existing, it shall not be allowed by the Registrar, because tow companies with the similar name cannot be registered.
But if he says yes, because no other company is registered with that name, an application for the registration of the company should be presented to the Registrar of the State in which the Registered office of the company shall be situated. The appl9ication along with necessary fee shall be presented along with the following documents :
(1) The Memorandum of Association.
(2) The Articles of Association, if any which should be signed by the subscribers to the Memorandum of Association.
(3) Any agreement with the individual persons who are proposed to e appointed as Managers, Directors or Managing Director of the company.
(4) A statement of the nominal capital of the Company.
(5) A notice of address of the registered office of the company.
(6) A list of the Directors who have agreed to become the first Directors of the company along with their consent to act as Directors and to take up the qualification shares of the company in the case of a public company.
(7) A declaration that all the requirements of the Companies Act have been complied with, shall also be submitted, which shall be signed by one nay of the following persons :
(i) An advocate of the Supreme Court or High Court, or
(ii) An attorney or a pleader entitled to appear before a High Court, or
(iii) A Secretary or a Chartered Accountant in whole time practice in India, who is engaged in the formation of the company, or
(iv) A person named in the Articles as a Directors, Manager or Secretary of the company.
Where the Registrar of Companies is satisfied that all the requirement have been complied with, he will register the company and enter the name of the company in the Register of Companies.
2. Incorporation Stage : Where the Registrar of Companies is satisfied that all the requirements have been complied with, he will register the company, and enter the name of the company in the Register of Companies.
When a company is registered and its name in entered in the register of companies, the Registrar will issue a Certificate of Incorporation in which he certifies that the company is incorporated under his hand and in the case of a limited company that the company is a Limited Company.

Legal FAQs -Effects of Registration / Incorporation of a Company

When a company is registered and a Certificate of Incorporation is issued by the Registrar, it shall have the following effects :
  • The company shall become s Separate Legal Entity from the date mentioned on the Certificate of Incorporation, which is considered as date of birth of the company.
  • The Company acquires Perpetual Succession. The members may come, members may go, but it goes for ever.
  • The company becomes the owner of its property and the Promoters of Shareholders have the right to share in the profits of the company.
  • The company can sue and can be sued in its own name.
How to Form a Company – Steps Effects of Registration and Incorporation of A Company Distinction Between A Public Company And a Private Company
Company Law – Tips for Lawyers and Layman

Legal FAQs -Distinction Between A Public Company And a Private Company

Distinction Between A Public Company And a Private Company – Following are the main points of difference between a Public Company and a Private Company :-
1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5,00,000.
2. Minimum number of members : Minimum number of members required to form a private company is 2, whereas a Public Company requires at least 7 members.
3. Maximum number of members : Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company.
4. Transerferability of shares : There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association , whereas there is no restriction on the transferability of the shares of a Public company
5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.
6. Number of Directors : A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have at least 3 directors.
7. Consent of the directors : There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company.
8. Qualification shares : The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company .
9. Commencement of Business : A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it.
10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully paid shares, Whereas a Private Company can issue Share Warrants against its fully paid up shares.
11. Further issue of shares : A Private Company need not offer the further issue of shares to its existing share – holders, whereas a Public Company has to offer the further issue of shares to its existing share – holders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing share – holders in the general meeting of the share – holders only.
12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.
13. Quorum : The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.
14. Managerial remuneration : Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.
15. Special privileges : A Private Company enjoys some special privileges, which are not available to a Public Company.
How to Form a Company – Steps
Effects of Registration and Incorporation of A Company Distinction Between A Public Company And a Private Company Company Law – Tips for Lawyers and Layman

Rules applicable

Companies (Central Governments) General Rules and Forms,1956.

Filing Registering/Approving Authority

One copy has to be submitted along with a forwarding letter addressed to the concerned Registrar of Companies..

Enclosures

The declaration must be submitted with following annexes.
Document evidencing payment of fee.
Memorandum and Articles of Association.
Copy of agreement if any, which the proposed company wishes to enter into with any individual for appointment as its managing or whole-time director or manager.
Form 18
Form 32(except for section 25 company).
Form 29 (only in case of public companies).
Power of Attorney from, subscribers.
Letter from Registrar of Companies making name available.
No objection letters from directors/promoters.
Requisite fees either in cash or demand draft.

Fees

Fee payable depends on the nominal capital of the company to be registered and may be paid in one of thefollowing modes. Cash/postal order (upto Rs.501-) demand draft favouring Registrar of Companies/Treasury Challan should be payable into specified branches of Punjab National Bank for credit under the following head,
Namely :-
Major Head Alphanumeric code description Account code Serial code source category check digit
(1) (2) (3) (4) (5)
1475 Other General Economic Services 147500105 14750006 113
1475-00-105 Regulation of Joint Stock Companies:
  1. Registration fees Filling fees Inspection and copying fees
  2. Other fees
14750010599                14750010598                14750010597                14750010596 14750032 14750033  14750034 14750035 114
117                      112
119

Time-limit

It should be submitted before incorporation or within 6 mouths of the name being made available.

Practice Notes

The declaration has to be signed by an advocate of Supreme Court or High Court or an attorney or pleader entitled to appear before High Court or a secretary or chartered accountant in whole-time practice in India who is engaged in the formation of the proposed company or person named in the articles as director, manager or secretary.
The Registrar of Companies has to be satisfied not only that the requirements of section 33(1) and (2) have been complied with but be also satisfied that provisions relating to number of sub scribes, lawful nature of objects and name are complied with.
The Registrar will check whether the documents have been duly stamped and also whether the requirements of other laws are met.
Any defect in any of the documents filed has to be rectified either by all the subscribers or their attorney, or by one subscriber holding power of attorney on behalf of other subscribers.
This form is to be presented to the Registrar of Companies within three months from the date of letter of Registrar allowing the name.
This declaration is to be given on a non-judicial stamp paper of the requisite value. The stamp paper should be purchased in the name of the person signing the declaration.
This declaration is to be given by all the companies at, the time of registration, public or private.
The place of Registration No. of the company should be filled up by mentioning New Company therein.
The Registrar of Companies will now accept computer laser printed documents for purposes of, registration provided the documents are neatly and legibly printed and comply with the other requirements of the Act. This will be an additional option available to public; to use laser print besides offset printing for submitting the memorandum  and articles for registration of companies.
Where the executants of a memorandum of association is illiterate, he shall give his thumb impression or marks which should be described as such by the sub- scriber or person writing for him.
An agent may sign a memorandum on behalf of a subscriber if he is authorised by a power-of-attorney to do so.
In the case of; an illiterate subscriber to the memorandum and articles of association, the thumb impression or mark duly attested by the person writing for him should be given. The person attesting the thumb mark should make an endorse- ment on the document to the effect that it has been read and explained to the sub- scriber.
The Registrar of Companies will not accept zerox copies of the memo ran dum and articles of association for the purposes of registration of companies.

Declaration to be signed by

(i) An advocate of the Supreme Court or of the High Court or an attorney entitled to appear before the High Court, or
(ii) a secretary or a chartered accountant in wholetime practice in India, or
(iii) by a person named in the articles of association of the proposed company as a director, manager or secretary of the company.

Presented by

This declaration is to be presented by the person signing the declaration or by his bearer at the counter of the Registrar of Companies office.
With whom to be filed
With the Registrar of Companies of the State in which the company is to be registered.
Documents required to be submitted
(1) A printed copy each of the Memorandum and Articles of Association of the proposed company-filed along with declaration
duly stamped with the requisite value of adhesive stamps from the State/ Union Territory Treasury(For value of stamps to be affixed see  Schedule printed in Part Ill, Chapter 23.)
below the subscription clause the subscribers to the Memorandum, should write in his own hand-his full name and father’s, or husband’s full name in block letters full address, occupation,e.g.,’busidess executive, engineer, housewife, etc. and number of equity shares taken and then put his or her signatures in the column meant for signature.
Similarly at the end of the Artictes of Association the subscriber should write in his own hand-7-his full name and father’s full name in block letters, full address, occupation.
the signatures of the subscribers to Mernorandum and the Article of Association should be witnessed by one person preferably by the person representing the subscribers, for registration of the proposed company before the Registrar of Companies.
Under column ‘Total number of equity shares’ write the total of the shares taken
Mention date e.g. 5th day of August, 1996.
Place-e.g. , ‘New Delhi’.
(2) With the stamped copy one spare copy each of the Memorandum and Articles of Association of the proposed company.
(3)  Original copy of the letter of the Registrar of Companies intimating the availability of name.
(4)   Form No. 18 – Situation of registered office of the proposed company.
(5)  Form No. 29–Consent to act as a director etc. Dates on the consent Form and the undertaking letters should be the same as is mentioned in the
Memorandum of  Association signed by the director himself. A private company and a wholly-owned Government company are not required to file Form No. 29.
(6)  Form No. 32 (in duplicate). Particulars of proposed, directors, manager or secretary.
(7) Power of attorney duly typed on a non-judicial stamp paper of the requisite value. The stamp paper should be purchased in the name of the persons signing the authority.
(8) No objection letter from the persons whose name has been given in application for availability of name in Form No. 1-A as promoters/directors but are not interested at a later stage should be obtained filed with the Registrar at the time of submitting documents, for registration
(9) The agreements, if any, which the company proposes to enter with any individual for, appointment as managing or whole-time director or manager are also to be filed.

Fee payable

Cash or a bank draft/ pay order treasury challan should be drawn in the name of the Registrar of Companies of the State in which the Company is proposed to be registered as per Schedule X.

Penalty

Imprisonment up to two years and fine.

Person liable for default

Person signing the declaration.





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