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How to Form a New company in India - Legal Aspects.

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  1. 1. How toWhat it is? Incorporate ?
  2. 2. Definition: Defined U/S 3(1) of Companies act 1956. A company is an Artificial person with distinct characteristics of separate legal entity, Perpetual succession & common seal. All the companies are regulated by Companies act, except Banking, Insurance & Power supply Companies, which are comes under purview of their respective acts.
  3. 3. Types ….. Companies are Broadly divided as Private Limited Public Limited Sec 25 Sec 25 Companies are Not –For-Profit Companies, established with objective of promoting commerce, arts, science, religion, charity like services. The name of Private company ends with Private limited (ex: IBM India Private Limited) whereas public limited company ends with Limited company (ex: Infosys India Limited).
  4. 4. Again Classified as Under.1. Unlimited Company : Member’s Liability is Unlimited & extends to his personal assets also, till he ceases to be a member.2. Limited By Shares : Member’s liability will be restricted to the Unpaid portion of his Share capital only.3. Limited By Guarantee : Member’s liability will be restricted to the amount as Guaranteed in their MOA.4. Limited By Shares & Guarantee
  5. 5. Minimum requirements to befulfilledPrivate Public Minimum Number of  Minimum Number of Members 2 Members 7 Maximum Number of  Maximum Number of Members 50 Members Unlimited. Minimum Number of  Minimum Number of Directors 2 Directors 3 Minimum Paid-up capital  Minimum Paid-up capital required – `1 lac. required – `5 lac.
  6. 6. What is Not-For-ProfitOrganization? Defined in Sec 25 of Companies act. So, also called it as Sec 25 Company. Can be registered with limited liability, with out adding limited or private limited to its name. The Main Objective should be promoting Commerce, arts, science, religion, charity or any other useful object. Intends to apply it’s profit or other income its sole objective. Central government may revoke it’s license if their service is not satisfactory , after giving it’s written notice to that effect & opportunity to be heard.
  7. 7. Private Company In Detailed……. Liability of Members is limited or Unlimited based on the type of company as afore mentioned in slide 4. Restriction on right to transfer shares. Limited to number of members to 50. Prohibition on inviting public to subscribe to any shares or debentures of a company. Prohibit an invitation or acceptance of deposits from other than members, directors or their relatives.
  8. 8. Privileges & exemptions…..A private company can have a greater degree of secrecy as regards its affairs and enjoys greater freedom on its operations, like…1) It may allot shares without issuing a prospects .2) No restrictions on the amount of overall managerial remuneration that it may pay.3) There are no restrictions on the power of board of directors.4) A director can vote on a contract in which he is interested.
  9. 9. Public Company in Detailed….. Liability of Members is limited. No restriction on transfer of shares. Public company can run with unlimited Members They are free to invite any person for subscribing shares or debentures by issuing prospects. They even can buy-back the shares those sold by them to the public. Only Public company can be listed in stock-exchange after receiving the approval from SEBI & Stock- exchange.
  10. 10. How to Incorporate a Company…1) Legal Aspects : In case of Public company with or without liability any 7 or more, 2 or more for Private company can form, as per sec 12. By subscribing their names to Memorandum & complying with requirements of act. It Should be incorporated by keeping the view of below points. It should be for Lawful Purpose
  11. 11. Steps Involved in starting aBusiness in India.1. File form DIN-1, to obtain Director identification Number (DIN).2. Obtain Digital Signature certificate from Private agency authorized by MCA.(Ministry of Corporate Affairs).3. File form 1A, to obtain name of the company by providing 6 names as your preference, then MCA will award the suitable name, without having any infringement with names of existing company.4. File MOA, (Memorandum of Association) u/s 33(1)(a), AOA (Articles of Association) u/s 33(1)(b), file form 1, as declaration for Incorporation by filling all these.
  12. 12. Steps Involved in starting aBusiness in India Form 18, Notice of situation or change in the address of the registered office. Form 32, Particulars of appointment of MD’s, Directors, Company secretaries & undertaking to take & pay for qualification shares. Stamp the Company documents, at the state legislative. Obtain PAN (Permanent Account Number) in the name of company by filling form 49A. Obtain TAN (Tax Account Number) for TDS under DIT India by filling form 49B.
  13. 13. Steps Involved in starting aBusiness in India. Register with office of Inspector shops, & establishment act. Register with VAT (Value Added Tax) by filling suitable under respective state VAT Act. (Form Vat 1oo for AP). Register for Profession tax at the Profession tax office, under respective state laws enacted, by filling form 1 under PT Act. Register with employee’s provident fund organization under Central government. Register for Medical Insurance at the regional office of the employee’s state insurance corporation under Central government.
  14. 14. Steps Involved in starting aBusiness in India. The Agreement if any, the company is proposed to appoint any individual as it Managing or Whole time Director . u/s 33(1)(c). A Declaration that the requirements of the act & the rules formed there under have been complied, should be signed with Advocate of supreme court or High court/ Practicing chartered accountant/ company secretary. u/s 33(2). Subscribing names, address, occupation shall be signed in the MOA & AOA having at least one witness to the effect. u/s 15. Every Director/Member should take at least one share in the company, if the company Incorporated by share capital.
  15. 15. Steps Involved in starting aBusiness in India.Applicable Only for Public Company.. A company having Share capital Should issue “Prospectus” inviting Public to subscribe for it’s shares & “Statement in Lieu of Prospectus” if company not going for IPO. Company is able to receive subscriptions at least 90% of the Issued capital from public. Every director has paid, in respect of his shares, which he is bound to pay. A company cannot commence, if it is failure to apply for it’s shares or debentures under any recognized stock-exchange.
  16. 16. Steps Involved in starting aBusiness in India. A Statutory declaration by the secretary or one of the director that the aforesaid requirements have been complied with the provisions of the act stipulated, is filed with ROC. (Registrar of Companies). Up on registration of all these documents & paying all the necessary fees, the ROC will issue a certificate of Incorporation & in case of limited company “Limited”.
  17. 17. What is Prospectus..? Sec 2(36) of companies act defines Prospectus as “ Any document described or issued as prospectus, document, notice, circular, advt, inviting deposits from the public or offers inviting offers from the public for the subscription or purchase of any shares or debentures of a body corporate. Prospectus should be in writing, oral invitation to subscribe will not be considered as prospectus. Prospectus should contain the financial performance of the company of past 5 years, proposed projects, management perception of risk factors. Some Types: Shelf prospectus, Information memorandum, Red-herring prospectus & Abridged prospectus.
  18. 18. What is Memorandum ofAssociation (MOA) The MOA of a company is in fact it’s charter, it defines it’s constitution & scope of powers with which it has been established under act. Contents:1. The Name of the company ends with Limited or Private limited as the case may be.2. The state in which registered office is situated.3. Main Objective of company & other ancillary objectives to the attainment of main objective.4. A declaration that Members liability is limited5. A statement as to the amount of share capital, & it’s division in to shares of fixed amount.
  19. 19. Articles of association (AOA) The articles of association of a company are its rules & regulations, which are framed to manage its internal affairs. The articles will play Subsidiary to the MOA Every company should require to register its articles along with MOA. AOA are the Bye-laws of the company according to which Directors & other officers required to perform their functions as regards the management of the company, its accounts & Audit.