HOW TO FORM A COMPANY IN INDIA?

Before we could analyse the procedures for incorporating a company in India, let us have a quick view of some of the basic particulars.

WHAT IS A COMPANY?

  • A Company can be termed as a voluntary association of person incorporated for the purpose of carrying out some business.
  • In the eyes of law, a company is considered as a juristic person.
  • The company can sue and it can be sued.
  • It has its own name and a separate legal entity, distinct from its members who constitute it.
  • A company has its own property; the members (shareholders) can not claim the property of the company as their own property.
  • Though a company is treated as a legal person, it is not considered as a citizen; hence, it doesn’t hold any citizenship in this country.
  • The liability of the members (shareholders) of the company is limited to the amount of shares they hold in the company.
  • Shares of a company are easily transferable to any person. It means the business can be transferred from one hand to another.

AUTHORISED SHARE CAPITAL:

The Companies act, 1956 limits the powers of board to issue share within the limit of Authorised Share Captial. It can be increased at any time after complying with certain formalities prescribed under the Act.

The minimum authorised share capital for incorporating a Private Limited company is INR 100,000.

The minimum authorised share capital for incorporating a Public Limited company is INR 500,000.

PAID UP SHARE CAPITAL

Paid-up Share Capital is that portion of Authorised Share Capital for which shares have been issued by the company and shareholders had paid for those shares.

PROMOTERS:

As the name indicates, Promoters are the persons who promote / float / incorporate a company. They stand as the primary persons to take through a company. Promoters are normally been appointed as directors of the company.

Number of Promoters

For incorporating a Private Limited Company a minimum of two promoters are required.

For incorporating a Public Limited Company a minimum of seven promoters are required

NUMBER OF DIRECTORS

For incorporating a Private Limited Company a minimum of two directors are required.

For incorporating a Public Limited Company a minimum of three directors are required.

FORMATION OF COMPANIES UNDER THE COMPANIES ACT, 1956

  • As per the Company law, the name of each company should be unique. As such, the proposed name of the company has to be approved by the Registrar of Companies and blocked till registration. The following is the process to get availability of name
    1. Promoters / Directors have to file an application in Form 1A giving the following particulars:
    2. Names and addresses of promoters
    3. Proposed name of the company
    4. Two Alternative names of the proposed company is required if the proposed name is not available
    5. Type of company – Private or Public
    6. Brief objectives of the company
    7. Proposed Directors and their addresses
    8. Proposed address of the company
    9. Authorised Share Capital
    10. Details of Group companies, if any
    11. Details of fees paid for name availability
    12. Note about significance of the proposed name. This is because
      regulations have some criteria based on which names are to be allowed
  • Director Identification Number:It is a unique Identification Number allotted to an individual who intends to be appointed as director of a company pursuant to section 266A & 266B of the Companies Act, 1956. DIN is mandatory for all directors
  • Digital Signature Certificate:
    The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed
    electronically. This is the only secure and authentic way that a document can be submitted electronically. As such, all filings done by the companies under MCA21 e-Governance programme are required to be filed with the use of Digital Signatures by the person authorised to sign the documents.
  • Application for the availability of name: Apply to the jurisdictional Registrar of Companies to ascertain the availability of name in Form- 1A along with fee of Rs. 500/-. Registrar of Companies normally informs the status of the application within 4 days. If the name proposed is not available, apply again for a fresh name. On approval of name, the Registrar will issue a name allotment letter and will block the name.
  • Memorandum and Articles of Association:
    1. Arrange for drafting of the Memorandum and Articles of Association, vetting of the same by the Registrar of the Companies and printing of the same.
    2. Arrange for stamping of the Memorandum and Articles of Association as per instructions of Registrar of Companies
    3. Get the Memorandum and Articles of Association (MoA & AoA) signed by Directors, and each shall also write in his own hand his name, father’s name, occupation and address and number of shares subscribed for, and duly witnessed by at least one person who shall also write in his own hand his name, father’s name, occupation and address.
    4. In case the Memorandum and Articles is to be signed by any of the promoters out side India, then the signing should be done in the presence of Consul of India at the Indian Consulate. The MoA & AoA should be dated on a date after the date of stamping
  • Fee Structure:
  • Fee required to be paid to the ROC for incorporation of the company.

    Authorised Capital

    Incremental capital

    Fee / incremental fee (INR)

    Upto INR 100,000

    4,000

    From INR 100,000 to INR 500,000 For every INR 10,000

    @ 300

    From INR 500,000 to INR 5,000,000 For every INR 10,000

    @ 200

    From INR 5,000,000 to INR 10,000,000 For every INR 10,000

    @ 100

    Over INR 10,000,000 For every INR 10,000

    @ 50

  • The following forms are to be filled and signed:
    1. Statutory declaration by Company – Form No.1.
    2. Notice of situation of Registered Office of the Company – Form No. 18.
    3. Particulars of Directors, Manager or Secretary – Form No. 32.
    4. Consent to act as Directors – Form No. 29.
  • File the following documents with the Registrar of Companies:
    1. Stamped and signed copy of Memorandum and Articles of Association.
    2. Form No. 1, 18, 32, and 29 in duplicate.
    3. Certified true copy of the Registrar of Companies letter intimating availability of name.
    4. Power of attorney in favour of any person for making corrections
      on their behalf in the documents and papers filed for registration.
  • Certificate of Incorporation:
    1. Once all these procedures are through, Registrar of Companies will issue a Certificate of Incorporation
    2. In case of Private Limited Companies, they can commence business immediately on receipt of the certificates of incorporation from the Registrar of Companies.
    3. In case of Public Limited Companies, following additional steps are to be completed.
      • Arrange for payment of application and allotment money in cash by the Directors on the shares taken or agreed to be taken by them
      • File the statement in lieu of prospectus with the Registrar of Companies in accordance with Schedule IV of the Companies Act, 1956
      • File a declaration in Form No.20 with the Registrar of Companies to the effect that the application and allotment monies have been paid/will be paid in respect of shares taken up/agreed to be taken up by the Directors
      • After these formalities are over, the Registrar of Companies will issue Certificate of Commencement of Business
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This entry was posted on Tuesday, October 21st, 2008 at 3:40 pm and is filed under Statutory Matters. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

23 Responses to “HOW TO FORM A COMPANY IN INDIA?”

  1. Manoj says:

    Good info ..thanks….is Form no 29 is required (must) for Pvt Ltd. companies ?

  2. admin says:

    Thanks for your comment, Manoj !! You are requested to check our blog section regularly for updation.

    Regarding Form 29, it is not mandatory for Private Limited Companies. Also, condition as to allotment of qualification shares to directors is not applicable to Private Companies and hence, filing Form 29 is relaxed.

  3. Tatiana says:

    Very useful post. where can i find more articles about HOW TO FORM A COMPANY IN INDIA? ?

  4. admin says:

    Thanks for your comment, Tatiana.

    Though there are not many articles available on the web about the incorporation procedures, pls keep searching for !!

  5. [...] HOW TO FORM A COMPANY IN INDIA? | Cogzidel Consultancy Services … [...]

  6. Hero says:

    Very good site! I like it! Thanks! . [URL=http://my-test-doorway.myhost.com].[/URL]

  7. ashish says:

    Hai Good Infomartion thanks for that.

    Can I come to know who are permanent members in a company except Directors? (Like M.D. C.S. ?)

  8. admin says:

    Dear Mr. Ashish,

    Thanks for writing to Cogzidel !!

    There is a popular saying about the perpetual succession of companies – “Men may come, Men may go, but a Company can go on forever”. It means that it doesn’t depend on anyone and no one is required to be a ‘permanent’ member.

    People like M.D, E.D, Chairman are elected by share holders but they hold office till an agreed period of time, with an option that they are liable to retire by rotation, but can be re-appointed, if eligible. Personnel like C.S are considered to be employees of the company and they hold office like every employee does. So, there is no concept of “permanent” members in the case of a company.

  9. Tapan says:

    what should be the authorised share capital of a company using the word international

  10. admin says:

    Dear Mr. Tapan,

    Thanks for writing to Cogzidel !!

    You can get answer to your query from our another blog titled “Minimum Authorised Share Capital required for Companies in Inda”.

    Pls check the following link:

    http://www.cogzidel.in/blog/minimum-authorised-share-capital-required-for-companies-in-india/

  11. romil chhadwa says:

    hi, gr8 info !

    i have a couple of questions,
    we have decided to incorporate a private ltd company on our own without any help from a lawyer or a c.a ( they charge unnecessarily at times) is tht a wise decision ?

    also how long do i have to wait before the company is registered with the registrar , after getting the certificate.

    anything specific you think i need to keep in mind ? thnx a ton man

    cheers !!

  12. admin says:

    Answered by Cogzidel:

    Thanks for writing to Cogzidel.

    Here’re the answers to your question:

    a) In order to incorporate a company, you will have to approach a Company Secretary. This is because, the Registrar of Companies insists that the forms filed online need to be digitally signatured by the company secretary. Could you pls let us know about where are you located, so that we can help you in incorporating a company ?

    b) It would take about a minimum of 3 weeks for the procedural formalities. Thereafter, the Registrar will issue a ‘Certificate of Incorporation’. And you can start your business from the date mentioned on this certificate.

    c) You can leave your worries to a consultancy firm like us and we will take care of the rest.

    I hope this clarifies your queries.

  13. DEEPIKA says:

    what is the factor that decide the profit sharing ratio between the partners in a Pvt. Ltd. Company?

  14. admin says:

    Answered by Cogzidel:

    Dear Deepika,

    Thanks for writing to Cogzidel.

    We assume that by “partners”, you mean “directors”.

    For directors of a private limited company, normally remuneration is offered and also, various perquisites like chaffuer driven car, rent-free accommodation etc are provided.

    Remuneration is decided based on the negotiations and also considering the kind of efforts that a director take to discharge his / her liabilities.

    Also, some companies adopt the system of offering a commission at a fixed percentage on the net profit (audited) for each financial year.

    If the directors are allotted ‘qualification’ shares by the company, then they are also eligible for dividends (if any) declared by the company.

    Directors also get “Sitting Fee” for each board meeting they attend apart from being reimbursed the expenses (like conveyance) incurred by them.

    These are the usually adopted structures though it varies from company to company.

    Regards
    Cogzidel Team

  15. Tuhina says:

    Hi,

    All the informations are very vital. I need your help in forming up a Pvt ltd Co. Can you help me with a company sec or a C.A. I am from Mumbai. How much it costs for forming up a Pvt Ltd Co?

  16. sambasivudu Nakka says:

    its good

  17. admin says:

    Dear Sir,

    Can a NRI become a director in a Pvt. Ltd. Company? In other words can a NRI set up a Pvt. Ltd. company in India still remaining as NRI. Another (second) director may be resident or NRI or atleast one of the director has to be resident indian.

    Also can he be an honorary director means without any remunerations and perquisites?

    Kindly revert.

    Best regards,
    Rajendra
    ———————-

    Answered by Cogzidel:

    Thanks for writing to Cogzidel.

    Yes, a NRI can become a director of a Pvt Ltd Company. He can set up a Pvt Ltd company still remaining as NRI. The other director can also be a NRI. But, it is highly advisable to have one director here in India for signing purposes.

    Yes, a director can act without any remuneration and perquisites. This needs to be approved through a Board Resolution.

    Regards
    Cogzidel Team

  18. Pinky says:

    Dear Sir,

    If any company want to have NRI Director, does it require to get some persmission from any government body like RBI etc. If yes, what is the procedure for that?

    What hapens if a resident director become NRI later on. Does he need to get certain appoval?

    Thanks in advance.

    Regards
    ——————-
    Answered by Cogzidel:

    Dear Pinky,

    For appointing a NRI director, the company need NOT obtain any permission from anyone.

    Likewise, for a resident director who becomes NRI later, there needs NO permission.

    But, for operational purposes, it is advisable to have atleast one resident director.

    Regards
    Cogzidel Team

  19. Gomathi says:

    Hi,
    The info is very useful. Can you tell me about the details of the documents required to start a consultancy? In fact I got registration, Partnership deed done. What else should I take?

  20. admin says:

    Reply by Cogzidel:

    Dear Gomathi,

    Thanks for writing to Cogzidel.

    Regarding your query, here’re my answers.

    - Assuming that your’s is a Partnership Firm, you will have to draft a Deed and get it registered. I believe, you have already done it.
    - Then, you will have to apply for PAN and TAN for the partnership firm
    - And, considering the applicability, Service Tax Regn has to be done
    - You will have to trade mark your brand name / logo. Though this is not mandatory, it is recommended.
    - If you have more than 5 employees, you will have to do Professional Tax Registration
    - If you have more than 20 employees, you will have to do PF registration
    - If you have more than 20 employees (whose salary is more than 15,000 pm), then you will have to do ESI registration

    Pls contact us at bala@cogzidel.in, in case you need help on any of these.

    Regards
    Cogzidel Team

  21. Daniel P says:

    We are two foreigners who opened a private limited company. Do we need any approval to transfer money in India base on Foreign Exchange Management Act, 1999? If yes please write me what we have to do.
    Thank you. Your site is very helpful.

  22. admin says:

    Reply by Cogzidel:

    Dear Mr. Daniel,

    Thanks for writing to Cogzidel.

    Investments by foreign nationals in Equity of an Indian Company is covered under FEMA.

    Firstly, we will have to check whether the business of the company is covered under Automatic Route or Special Route.

    If covered under Automatic Route, you need not seek any prior approval. You can wire the monies to the bank account of the company. The company has to inform the RBI through Authorised Dealer (the bank) within 30 days of receiving the monies. Once the allotment is done, within 30 days, the company has to file Form FC-GPR to RBI through Authorised Dealer (the bank).

    If covered under Special Route, the company has to obtain a permission from Reserve Bank of India before receiving monies from you.

    Regards
    Cogzidel Team

  23. Ramachandran Rajagopal says:

    Dear Mr. Bala,

    Hope this message finds you in good spirit and health.

    I would like to introduce myself as Ramachandran Rajagopal from Chennai. I am a 24-year old working on a social venture idea of mine right now. I graduated from BITS, Pilani with a B.E in Computer Science in 2008 and following that, I worked with XYZ in Gurgaon for 3 years. I recently quit my job with a commitment to work on my social business idea.

    And to this end, I was looking for some help for my startup and that is when I stumbled upon your website. And at first sight, I was quite impressed by the array of your services for young businesses. It would be great if we could have a conversation sometime over phone or in person regarding some legal advice for my startup. And since I am in a hurry to get the legal issues sorted, I would really appreciate if you could respond soon. Or, you could call me on my mobile – 9XXXX XXXXX.

    And finally, I would like to congratulate you on this brilliant idea of yours and wish you all success in helping and fostering the startup genes of my generation. And, I would like to suggest you, if I may, to consider a better ‘Search Engine Optimization’ ploy for your website. Because, it took me a while on Google to find your site and the potential of your idea is too good to take so much time on Google to be found.

    Cheers,
    Ramachandran Rajagopal

    Reply from Cogzidel:

    Dear Mr. Ramachandran,

    Thanks for your suggestion. We will consider the same.

    Regards
    Cogzidel Team

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