Company Formation in India

Companies Act

Companies incorporated or registered in India are governed by the Companies Act 2013.

Shareholders and Directors

  • There is no need to appoint local director to incorporate a company in India.
  • Foreign nationals can incorporate company in India and hold foreign equity to the extent of 100%, which is dependent upon sector in which company will operate and is subject to approval from either Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB).

Memorandum & Articles of Association

The Memorandum of Association states the main, ancillary / subsidiary and other objects of the proposed company. The Article of Association contains the rules and procedures for the routine conduct of the proposed company. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. After that Memorandum of Association and Article of Association are required to be stamped.
A stamp duty is required to be paid on Memorandum of Association and Article of Association. The stamp duty depends on the authorized share capital.

Share Capital

Shares must be expressed in a fixed amount. “No par value” or “bearer” shares are not permitted. Shares to be subscribed must be expressed in Indian rupees.

Accounts & Auditors

Every company is required to appoint an auditor each year at its AGM. An auditor must be qualified by virtue of the Institute of Chartered Accountants of India Act 1949 and completely independent of the company. Audited accounts of the company serve as tool for various stakeholders like creditors, bankers, investors and revenue authorities.

Public Filings

The names and personal particulars of the directors and secretary, register of charges, share capital, registered office address etc. must be filed with the Companies Registry for public inspection upon incorporation and if there is any change thereafter.

Annual Meetings

An annual general meeting (AGM) must be held once in every financial year and not more than 6 months after the end of financial year. However, a company need not hold its first AGM until 9 months of the date of closing of first financial year.

FAQ on Indian Companies

What is a Private Limited Company?

A Private Limited Company is a Company limited by shares in which there can be maximum 200 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares.

The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. The minimum number of shareholders is 2.

What is a Public Limited Company?

A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. The minimum number of shareholders is 7.

Which entity is best suited?

The choice of entity depends on circumstance of each case. Private Limited Company has lesser number of compliance requirements. Therefore, generally where there is no requirement of raising of finances through a public issue and the ownership is intended to be closely held by limited number of persons, Private Limited Company is the best choice.

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

The minimum paid up capital at the time of incorporation of a private limited company has to be Indian Rupees 1,00,000 (though it has been omitted by Companies Act 2013). There is no upper limit on having the authorized capital and the paid up capital. It can be increased any time, by payment of additional stamp duty and registration fee.

What is the difference between authorized capital and paid up capital?

The authorized capital is the capital limit authorized by the Registrar of Companies up to which the shares can be issued to the members / public, as the case may be. The paid up share capital is the paid portion of the capital subscribed by the shareholders.

What is the procedure in obtaining a name approval for the proposed Company?

An application in Form No. INC-1 needs to be filed with the Registrar of Companies (ROC) online through Digital Signature of one of the proposed director. The details to be furnished in the said application are as follows:

  • Alternative names for the proposed company. (The name can be coined names from the objects of the proposed company or the name of the directors, etc. but should definitely be indicative of the main object of the company. Justification for the name needs to be specified along with the application)
  • Names and addresses of the promoters (Minimum 7 for a public company while 2 for private company).
  • Authorized Capital of the proposed company.
  • Main objects of the proposed company.
  • Names of other group companies.

On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 3-4 days to the applicant through e-mail.

What is the Memorandum Of Association (MOA) and the Articles Of Association (AOA) of a company and what is the procedure in this regard?

On receipt of the name approval intimation from the ROC the MOA and the AOA are required to be drafted. The MOA states the main, ancillary / subsidiary and other objects of the proposed company. The AOA contains the rules and procedures for the routine conduct of the proposed company. It also states the authorized share capital of the proposed company and the names of its first / permanent directors. After that MOA and AOA are required to be stamped.

A stamp duty is required to be paid on MOA and AOA. The stamp duty depends on the authorized share capital.

What are the documents required to be executed for incorporation?

The following documents are required to be executed before they are submitted to the ROC:

  • MOA and AOA – These are required to be signed by the promoters in their own handwriting in presence of a witness stating their full name, father’s name, residential address, occupation and number of shares subscribed for, etc.
  • Form INC-7-with incorporation of a new company (other than OPC).
  • Form INC-8 – – This is a declaration to be executed on a non-judicial stamp paper by one of the directors of the proposed company or other specified persons such as Attorneys or Chartered Accountant stating that all the requirements of the incorporation have been complied with.
  • Form INC22 – This is a form to be filed by one of the directors of the company informing the ROC the registered office of the proposed company.
  • Form DIR-12 – – This is a consent obtained from all the proposed directors of the proposed company to act as directors of the proposed company. (Not required in case of private company).
  • FForm DIR-2– This is a form stating the fact of appointment of the proposed directors on the board of directors from the date of incorporation of the proposed company and is signed by one of the proposed directors.
  • INC-9- Declaration by first directors in case of new company
  • Power of Attorney signed by all the subscribers of MOA authorizing one of the subscribers or any other person to act on their behalf for the purpose of incorporation and accepting the certificate of incorporation.
  • Filing fees as may be applicable.

How is the certificate of incorporation issued?

After the documents are filed, the ROC calls the attorney for scrutiny and making the corrections in the MOA and AOA filed. On complying with the same, the certificate of incorporation is issued.

When can the newly formed company start its business operations?

On receipt of the certificate of incorporation, the public company has to complete certain other legal formalities such as a statutory meeting (within 6 months), statutory report, etc. On completion of the said formalities and on filing of the statutory report with the ROC the ROC issues the certificate of commencement of business to the company. Thereafter, the Public Company can start the business operations. The Private Company can start its business immediately on incorporation.

How do we comply with the legal formalities when we are not stationed in India?

You can give Power of Attorney to a person to appear before ROC to complete the necessary formalities after getting MOA, AOA, Power of attorney and other allied documents notarised by notary public and attested by Indian Embassy/Consulate situated in foreign country.

What other approvals are required for foreign investor in India?

Once the company is incorporated in India, foreign investor has to either intimate Reserve Bank of India (RBI) of the foreign equity or take approval of Foreign Investment Promotion Board (FIPB). Intimation to RBI or approval from FIPB is dependent upon sector in which foreign investor intends to do business.

How does a foreign company invest in India?

Either through:-
1. Automatic Approval – by the country’s Central Bank, the Reserve Bank of India (RBI)

Automatic Approval through Reserve Bank of India is available for all items/activities except a few as given in the Press Note No.4(2006series)

No prior approval required. The company is only required to report to RBI within 30 days of receipt of foreign equity/allotment of shares.

2. Foreign Investment Promotion Board (FIPB) approval is required for all other proposals not eligible for Automatic Approval.

Applicable law

The Indian Companies Act, 2013
For company registrations In India, the Companies Act of 2013 sets down rules for the establishment of both public and private companies.

Allotment of Director Identification Number (DIN)

Application in Form DIR-3 shall be made online and provisional DIN number of the person intending to become director of the Company shall be generated.

Acquiring Digital Signature certificate (DSC)

Digital Signature Certificate is acquired by submitting the application alongwith prescribed fee to one of the various vendors like TCS, Satyam etc. On submission of documents, DSC is allotted in 1-2 days.

Name Approval of the company

An application in Form INC-1 needs to be filed with the Registrar of Companies (ROC) online through Digital Signature of one of the proposed director. On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 3-4 days to the applicant through e-mail.

Procedure after name approval of the company

An application for registration should be submitted to the Registrar of Companies with the following documents:

  • Memorandum of Association;
  • Articles of Association;
  • A declaration in Form INC-8 by a person named in the articles of the proposed company as a director, manager, or secretary of the company, or by an advocate of the Supreme Court or High Court, or by an attorney entitled to appear before the High Court, or by a Chartered Accountant practicing in India stating that all the requirements of the Companies Act 2013 and the applicable rules with respect to the registration and other matters have been complied with;
  • A list of persons who have consented to act as directors of the company.
  • Consent of every person prepared to act as a director and information about directors, managing directors, managers and secretary must be submitted in a prescribed Form DIR-12
  • Information about the registered office in prescribed Form INC 22
  • Power of attorney in favour of one of the promoters or any other person, authorizing him/her to make corrections in the documents submitted to the Registrar of Companies,
  • Applicable registration fee payable to the Registrar of Companies.

1. Details of proposed company to be incorporated

  • Proposed names of the company in order of preference.
  • Main objects of the company.
  • Authorized share capital of the company

2. Details of Directors ( Provide details of 2 directors in case of private company and 3 directors in case of public company ).

  • Complete Name
  • Address including (city, state, pincode, country)
  • Father’s Name
  • Date of Birth
  • Nationality
  • Occupation
  • Three photographs of every proposed Directors. (scanned photographs will do)
  • Copy of passport as a proof of identity and copy of proof of address (electricity bill/ telephone bill/ bank statement/driving license). (scanned copy will do)

3. Details of Shareholders (Provide details of 2 shareholders in case of private company and 7 in case of public company)

Individual

  • Complete Name
  • Address including (city, state, pin-code, country)
  • Father’s Name
  • Date of Birth
  • Nationality
  • Occupation
  • Three photographs of every proposed shareholders. (scanned photographs will do)
  • Copy of passport as a proof of identity and copy of proof of address (electricity bill/ telephone bill/ bank statement/driving license). (scanned copy will do)

Corporate Shareholders

  • Copy of Certificate of incorporation
  • Copy of Memorandum and Articles of Association
  • Board resolution of the existing company authorizing for shareholding in the proposed company.

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