Basics Of Registering A Company


Published on

How to register a company, step by step Guide.

  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Basics Of Registering A Company

  1. 1. A step-by-step guide to help you understand how to register a company in India Registering a company in India can take anything from 15 days to as many as 35 days, though instances of getting the certificate of incorporation in a day to a week are also there. Before you start the process, you have to decide on what kind of company you plan to set up—a private limited company, a public limited company, a producer company or a branch of a foreign company in India. If you are planning to start a business and looking forward to registering your company, here is a step-by-step guide to help you in your pursuit. Rules for a private limited company 1. There can be maximum of 50 shareholders. 2. Minimum paid-up capital required is Rs 100,000. 3. A minimum of two directors and two shareholders are required. 4. No limit on maximum number of directors. Articles of Association of a particular company can fix a maximum number for itself. 5. There can be no invitation to the public for subscription of shares or debentures. 6. There can be no acceptance of deposits from public. However, deposits can be accepted from members, directors and their relatives. 7. Transfer of shares is restricted as per the Articles of Association. 8. Compliance requirements are lower in number. Private Company vs. Public Company Description Private Public Minimum 2, maximum Shareholders Minimum 7, no limit on maximum 50 Director Minimum 2 Minimum 3 Paid-up capital Minimum Rs 100,000 Minimum Rs 500,000 Restriction on public Public deposits No restriction deposits Restricted as per Articles Transfer of shares No restriction of Association Compliance Lesser in number More in number requirements Possible on obtaining Possible only after getting commencement of Commencement of certificate of business certificate within six months of business incorporation getting certificate of incorporation Rules for a public limited company
  2. 2. 1. Minimum number of shareholders is seven. No restriction on maximum number of shareholders. 2. Minimum paid up capital requirement is Rs 500,000. 3. Minimum number of directors is three. Company with paid-up capital and reserves of Rs 5 crore or more or turnover of Rs 50 crore or more should have a minimum of seven directors. 4. No limit on the maximum number of directors, the limit of which can be fixed by the Articles of Association of the company, though in order to have more than 12 directors permission of the central government is required. 5. No restriction on transfer of shares. 6. No restriction on acceptance of public deposits. 7. Invitation to the public for subscription of shares or debentures is allowed. 8. Compliance requirements are far higher. Registering a private limited company Registration of all sorts of companies in India is overseen by the Registrars of Companies (ROC), appointed under Section 609 of the Companies Act 1956. Every state has a regional office of the ROC to oversee the registration process. The ROC is vested with the power to register companies in India and also ensure they comply with all statutory requirements under the Act. Registration process Procedure Time to complete Cost to complete (Rs.) 1 Obtain director identification number (DIN) 1 day 100 online 2 Obtain digital signature 1-6 days 400-2,650 certificate online 3 Reserve the company name with the Registrar of 2-3 days 500 Companies (ROC) online 4 Memorandum and Articles Has to be done within of Association vetted and six months of name Nil printed approval 5 Stamp the company documents either at the 1 day Charges vary from state to state superintendent’s or an authorized bank 6 Get the Memorandum and Articles signed by at least 1 day Nil two subscribers 7 Get the certificate of 3-7 days 4,000 for a company with authorized incorporation capital of Rs 1 lakh (Fee keep on
  3. 3. reducing successively in slabs after this) 8 Make a seal 1 day 350 9 Obtain a Permanent 66 for fee and 5 for application form Account Number (PAN) 15 days (if not downloaded) from UTI or NSDL 10 Obtain a tax account number (TAN) for income 15 days, simultaneously 55 taxes deducted at source from with procedure 9 the Assessing Office 11 Register for VAT with the 12 days simultaneously 5,000 (registration) + 100 (stamp sales tax officer with procedure 10 duty) 12 Register with Employees’ 2 days, simultaneous with Nil Provident Fund Organization procedure 11 13 Register with ESIC 1 day, simultaneously Nil (medical insurance) with procedure 11 14 Filing for government approval before RBI/FIPB 15 days Nil for foreigners and NRIs The very first step in the process of registration begins with the prospective directors of the company obtaining a directors’ identification number (DIN) and digital signature certificates. Both these can be obtained online. The next step involves approval of the name of the company by the ROC. One has to submit a list of six names (cannot be less than four) in order of preference to the concerned ROC in Form 1A (of the General Rules and Forms) along with a fee of Rs 500. The names should not resemble the name of any other company already registered and also should not violate the provisions of Emblems and Names (Prevention of Improper Use) Act 1950. The ROC is supposed to respond to the application within six days, but it normally takes anywhere between two to three days. Nowadays this procedure is done online. The approved name is reflected on the Website of the Ministry of Company Affairs (MCA). Following the approval of the name of the company, one has to get the Memorandum of Association (MoA) and Articles of Association (AoA) drafted. The MoA, according to Wikipedia, often simply called the memorandum, is the document that governs the relationship between the company and the outside world. The MoA clearly lays down the name of the company, the type of company the objectives of the company, and the authorized capital. It also mentions any other business company might like to venture into some time in the future. The AoA of a company, according to Wikipedia, are the regulations governing the relationships between the shareholders and directors of the company. Thus, the AoA typically cover issues of shares, voting rights, dividends, provision for transfer of shares, board meetings and similar matters pertaining to internal
  4. 4. functioning of the company. AoAs can be amended by shareholders having the requisite majority. The Articles once altered in accordance with the Act become the Articles of Association of the company binding on all the members. Once the MoA and AoA are drafted, these are printed and sent to the ROC concerned for vetting and pointing out objections. After all objections, if any, are addressed, these are sent for stamping with the appropriate stamp duty, which varies from state to state. Request for stamping the documents should be accompanied by unsigned copies of the MoA and AoA and the payment receipt. The company must ensure that copies submitted for stamping are unsigned and have nothing written on them by hand. Once these are signed, at least two subscribers of the company should sign them, providing in own handwriting the name and detailed activities of the company, along with their respective addresses, occupations and number of shares subscribed. These should be signed in presence of at least one witness. Documents Required for Registration Memorandum of Association of the proposed company, duly stamped Articles of Association of the proposed company, duly stamped Form no. 1 (Declaration of Compliance) as per the Companies General Rules & Forms 1956 Form no. 18 (notice of situation of registered office) as per the Companies General Rules Forms 1956 Form no. 29 (for consent to act as director of a company) as per the Companies General Rules Forms 1956 Form no.32 (particulars of directors, manager, or secretary) (in duplicate) as per the Companies General Rules Forms 1956 Copy of the name availability letter issued by the ROC earlier Power of Attorney on a stamp paper of the representative who appears for correction/alteration of any document Other documents as ROC may require to be furnished Finally, all the documents are sent to the ROC along with other details like particulars of appointment of the managing director, directors, manager and secretary. This is followed by paying a registration fee, which depends on the company’s authorized capital. Once this procedure is completed, the company is registered as a private limited company under the Companies Act 1956. The ROC issues a certificate of incorporation to the company concerned, which can begin its operations right after getting this certificate. The whole process, thus, consumes anywhere between 15 to 20 days. There are a few more necessities that a company needs to fulfill, but it can do this simultaneously with starting operations. These necessities include getting a permanent account number (PAN), a company seal and registering for VAT obtaining tax identification number (TIN). The company also has to register for professional tax, with the Employees’
  5. 5. Provident Fund Organization and medical insurance. These procedures can be taken along with the procedure to register for obtaining TIN. Registering a public limited company The procedure for registering a public limited company is more or less same, with a few additional steps needed to be taken. These are: 1. Consent of directors to act as such in Form No 29. 2. Arrange for payment of application and allotment money by directors on shares taken or agreed to be taken. 3. File the Statement in Lieu of Prospectus with the ROC in Schedule-iv of the Companies Act. 4. File a declaration in Form-20 duly signed by one of the directors stating that every director has paid to the company for shares taken or contracted to be taken for cash in same proportion as is payable on application. 5. Obtain the Certificate of Commencement of Business. Unlike a private limited company, a public company is not authorized to start business upon the grant of the Certificate of Incorporation. It has to obtain a Certificate of Commencement of Business separately. The ROC issues this once the company fulfills all the previous formalities and submits a statutory report to it after holding a statutory general body meeting (within six months of receiving the certificate of incorporation). Registering unlimited companies is not so common in India as they are more or less like partnership firms where partners are responsible for all the actions of the companies. Their liabilities are not limited to just their shares like it is in case of limited companies. Registering a foreign company in India Foreign investors willing to incorporate a company in India need to seek government approval for doing so. Some approvals come through the automatic route and some need special approvals. For sectors in which investment is allowed under the automatic route, an application is required to be submitted to the Reserve Bank of India (RBI). Investors are required to notify the concerned regional office of the RBI within 30 days of receipt of inward remittances and file the required documents with that office within 30 days of issue of shares to foreign investors. For sectors where prior approval is required, proposals for investment by foreign investors are routed through theForeign Investment Promotion Board (FIPB). The rest of the procedure is the same as that of registering a public or a private company, depending on what type of entity the foreign investors plan to put in place. A foreign company can form a joint venture with an Indian partner or establish its own subsidiaries. A company once incorporated in India even with 100% foreign ownership is treated like any other Indian company. Practically, there can be lots of problems for a foreigner in establishing a company in India. “If you are not planning to set up your company in Delhi or Mumbai, problem is more acute. Make sure you have an efficient advisor who has prior experience of getting
  6. 6. foreign companies registered in India,” says Christopher Rudd, a New Zealand resident who had to go through lots of procedural delays while establishing an export–import firm in India. He adds, “Probably RBI officials in regional offices are also not aware of all procedures as applications for foreign investment approvals at these centers are very few.” However, a foreign investing company is entitled to acquire shares of an Indian company without obtaining any prior permission of the FIPB subject to certain prescribed guidelines. But in case such an acquisition results in the acquisition of a company listed on the stock exchange, it would require approval from the Security Exchange Board of India (SEBI). A foreign company is also free to set up its operations in India through a liaison office, project office or branch office. Companies have to register themselves with the ROC within 30 days of setting up a place of business in India. These offices are set up in the country only with the approval of the RBI and are bound to carry on permitted activities only. Producer company With the number of cooperative societies with huge business set up rising, the government opted for an amendment allowing a cooperative to turn into a ‘producer company’. This became possible with the Companies (Amendment) Act 2002, (1 of 2003), which added Part IXA to the Companies Act. According to the new provision, persons engaged in primary produce can participate in the ownership of a producer company, which can better be understood as a hybrid between a private limited company and a cooperative society. Under the Act, ten or more individuals involved in agriculture, handloom, handicraft or in cottage and ancillary industries can together incorporate a producer company. On registration, the producer company shall function as if it is a private limited company. Members of the company will have limited liability similar to a private limited company. However, a producer company is exempted from maintaining a minimum paid-up capital of Rs 1 lakh. Provision of maximum 50 shareholders is also not applicable. Equity of the members cannot be publicly traded, though it can be transferred. Keywords in company name and minimum authorized capital Sl. Required minimum Keywords No. authorized capital (Rs) 1 Corporation 5 crore International, Globe, Universal, Continental, Inter- 2 Continental, Asiatic, or Asia being the first word of the 1 crore name If any of the words in option 2 above is used within the 3 50 lakh name (with or without brackets)
  7. 7. Hindustan, India, or Bharat, being the first word of the 4 50 lakh name If any of the words of option 4 above is used within the 5 5 lakh name (with or without brackets) 6 Industries/Udyog 1 crore 7 Enterprises, Products, Business, or Manufacturing 10 lakh Source: Ministry of Corporate Affairs. Every producer company is to have at least five and not more than 15 directors. Usually, like a public limited company, the number of directors is kept at 12. The board also appoints a full-time chief executive, who can be entrusted with substantial powers of management as the board may determine. A producer company is also exempted from the obligation of keeping a full-time secretary. Only a company having an average annual turnover exceeding Rs 5 crore in three consecutive years need to have a full-time secretary. This is quite in contrast to both private and public limited companies, as they have to keep one if their paid-up capital is above Rs 2 crore. Section 25 company Companies Act 1956 provides for registration of a not-for-profit company under Section 25. Under this provision a company can be formed to promote commerce, art, science, religion, charity or any other useful object. Any profit or other income accruing of these companies have to be used for promoting the very objectives of the company only. The company formed under Section 25 is barred from paying any dividend. The company is also exempted from having a minimum paid up or authorized capital. Other rules for registering a Section 25 company is same as for any other private company. However, a company formed under Section-25 needs a minimum of three trustees, with no upper limit on the number. The board of management is in the form of a board of directors or managing committee. No stamp duty is required to get AoA or MoA stamped by the ROC. Other business entities Other forms of business entities include sole proprietorship and partnership firms. Sole proprietorship is the most common and simple type of business entity, where legal formalities are few. There is no obligation to file financial information to the ROC, to keep records and get them audited. There is no legal distinction between the proprietor and the company, and hence liability is unlimited. Partnership is something where two or more proprietors come together to form a bigger pool of capital, skills and resources. Partnerships are governed by the Partnership Act 1932. The Act restricts the maximum number of partners to ten if the firm thus formed is a banking business. For businesses of other types, the maximum number of partners allowed are 20. Normally, partners get profits divided in the proportion of their investment, but things are governed according to the “partnership deed” or “agreement” formed at the beginning. The agreement, which can be prepared by a lawyer, should contain all information about the partnership — the amount of initial capital contributed
  8. 8. by each partner, profit or loss sharing ratio for each partner, salary or commission payable to the partners, if any, duration of business, if any, name and address of the partners and the firm, duties and powers of each partner, nature and place of business and any other term and conditions the partners want to include. Liability of partners in a partnership firm in also unlimited. Unlike companies, partnership firms have no separate legal existence from its owners. No partner can sell or transfer his/her share to any one else without the consent of other partners. Limited Liability Partnership Act 2008 This is a new law that has been enacted recently to bridge the gap between the existing partnership laws and the provisions under the Companies Act 1956. The law limits the liability of a partner to his or her own stakes only in the company. No partner is liable on account of independent or unauthorized acts of other partners. At the same time, all partners are also held jointly liable for all acts of the firm, irrespective of the stake of a person in the company. The Act allows the partners to organize their internal management on the basis of a mutually-arrived agreement, as is the case in any partnership firm in India.