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formation of a company


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formation of a company

  1. 1. FORMATION OF A PRIVATE LIMITED COMPANY INDEX SR no Topic Pg no 1 Introduction to Private Limited Company 111111 2. Procedures for incorporation and registration of companies 2 3. I.Selection of type of the company. 3-6 II. Selection of name for the proposed company. III. Apply for Directors Identification Number and Digital Signatures, if does not have IV. Drafting of Memorandum and Articles of Association. V. Stamping, digitally signing and e-filing of various documents with the Registrar. VI. Payment of Fees. VII. Obtaining Certificate of Incorporation. VIII. Preparation and filing of Prospectus/Statement in lieu of Prospectus and e-Form 19/20 (in case of public companies) for obtaining the certificate of commencement of business. IX. Obtaining Certificate of Commencement of business (in case of public limited companies). 4. Company Formation in India – Private Limited 7-10 5. Compliance Requirements for Companies in India 11-13 6. Rules of Pvt Ltd Co 14 7. Summary 15-16 8. Conclusion 17 9. Bibliography 18 1 COMPANY LAW PROJECT.
  2. 2. FORMATION OF A PRIVATE LIMITED COMPANYIntroduction to Private Limited CompanyA private limited company is a voluntary association of not less than two and not more than fiftymembers, whose liability is limited, the transfer of whose shares is limited to its members andwho is not allowed to invite the general public to subscribe to its shares or debentures. Its mainfeatures are :-It has an independent legal existence. The Indian Companies Act,1956 contains the provisionsregarding the legal formalities for setting up of a private limited company. Registrars ofCompanies (ROC) appointed under the Companies Act covering the various States and UnionTerritories are vested with the primary duty of registering companies floated in the respectivestates and the Union Territories.It is relatively less cumbersome to organise and operate it as it has been exempted from manyregulations and restrictions to which a public limited company is subjected to.Some of them are :-It need not file a prospectus with the Registrar.It need not obtain the Certificate for Commencement of business.It need not hold the statutory general meeting nor need it file the statutory report.Restrictions placed on the directors of the public limited company do not apply to itsdirectors.The liability of its members is limited.The shares allotted to its members are also not freely transferable between them. Thesecompanies are not allowed to invite public to subscribe to its shares and debentures.It enjoys continuity of existence i.e. it continues to exist even if all its members die or desertit.Hence, a private company is preferred by those who wish to take the advantage of limitedliability but at the same time desire to keep control over the business within a limited circleand maintain the privacy of their business. Advantages Disadvantages Continuity of existence Shares are not freely transferable Limited liability Not allowed to invite public to subscribe to its Less legal restrictions shares Scope for promotional frauds Undemocratic control2 COMPANY LAW PROJECT.
  3. 3. FORMATION OF A PRIVATE LIMITED COMPANYPROCEDURES FOR INCORPORATION AND REGISTRATION OF COMPANIESA company is a voluntary association of persons formed for the purpose of business activities. Acompany has distinct name and limited liability, it is a juristic person having a separate legalentity different from its members who constitute it, capable of rights and duties of its own andendowed with a potential or perpetual succession. The Companies Act, 1956 prescribes specificprocedures for incorporation and registration of companies. A company can be formed eitherby1:—(i) incorporation of a new company; or(ii) conversion of existing business (sole proprietorship concern or partnership firm or co-operative societies) into company under the provisions of Chapter IX and Chapter IXA of theCompanies Act, 1956; or(iii) companies incorporated under section 25 of the Companies Act, 1956.The incorporation (birth) and winding up and dissolution (death) of a company are governed bythe provisions of the Companies Act, 1956. Therefore each company is subject to the provisionsof the Companies Act, 1956, as may be amended from time to time. The following procedureinvolves for incorporation of a company.STEP WISE FORMALITIES FOR FORMATION OF A NEW COMPANYPersons desirous of forming a company must adhere to the step by step procedure asdiscussed below:—I. Selection of type of the company.II. Selection of name for the proposed company.III. Apply for Directors Identification Number and Digital Signatures, if does not haveIV. Drafting of Memorandum and Articles of Association.V. Stamping, digitally signing and e-filing of various documents with the Registrar.VI. Payment of Fees.VII. Obtaining Certificate of Incorporation.VIII. Preparation and filing of Prospectus/Statement in lieu of Prospectus and e-Form 19/20 (incase of public companies) for obtaining the certificate of commencement of business.IX. Obtaining Certificate of Commencement of business (in case of public limited companies).1 Section 25 of the Companies Act, 19563 COMPANY LAW PROJECT.
  4. 4. FORMATION OF A PRIVATE LIMITED COMPANYSelection of the type of companyThe promoters of a company may be individuals or bodies corporate engaged in efforts toincorporate a company. They have the power of defining the object of the company anddeciding various connected matters regarding incorporation. Proposed scale of operations,capital involved, etc. depend upon the purposes for which the company is to be incorporated.The promoters are at liberty to select type of the company viz. private company, publiccompany, nonprofit making company, etc.2Requirement for having DINAs per proviso to section 253 of the Companies Act, 1956, inserted by the Companies(Amendment) Act, 2006, w.e.f. 1-11-2006, no company shall appoint or re-appoint anyindividual as director of the company unless he has been allotted a Director IdentificationNumber under section 266B. 3New section 266A has been inserted by the Companies (Amendment) Act, 2006 which providesthat every individual, intending to be appointed as director of a company shall make anapplication for allotment of Director Identification Number (DIN) to the Central Government inthe prescribed DIN Form. Therefore, before submission of e-Form 1A all the directors of theproposed company must ensure that they are having DIN and if they are not having DIN, itshould be first obtained, however on the basis of the provisional DIN allotted online will servethe purpose. 4Specific care should be taken that a person cannot have more than one DIN, therefore, a DINonce obtained shall serve the requirement for all the companies in which he is director orintended to be a directorRequirement for having digital signaturesAfter 16th Sept., 2006, every documents prescribed under the Companies Act, 1956 is requiredto be filed with the digital signature of the managing director or director or manager orsecretary of the Company, therefore, it is compulsorily required to obtain digital signatures ofat least one director to sign the e-Form 1A and other documents.Selection of nameSix names are required to be selected in order of preference after taking notes of numerousclarifications, circulars and rules made by the Ministry of Company Affairs (DCA), etc. In casekey word is required, significance of each key word should be given in the e-Form 1A.2 Article “BASIC UNDERSTANDING ABOUT COMPANIES”3 Proviso to section 253 of the Companies Act, 1956, inserted by the Companies (Amendment)Act, 2006, w.e.f. 1-11-20064 Section 266A has been inserted by the Companies (Amendment) Act, 20064 COMPANY LAW PROJECT.
  5. 5. FORMATION OF A PRIVATE LIMITED COMPANYAPPLYING FOR ASCERTAINING THE AVAILABILITY OF THE SELECTED NAMEThe promoters are required to make an application to the concerned Registrar of Companies besubmitted electronically to the Ministry of Company Affairs on the portal of MCA. Anapplication shall be in e-Form 1A as prescribed5 duly digitally signed by any one promoter ormanaging director or director or manager or secretary of the company alongwith the requiredfee of Rs. 500 only for ascertaining whether the selected name is available for adoption by thepromoters of the proposed company.APPROVAL OF THE NAMEAfter receipt of completed application in e-Form 1A, the Registrar shall intimate whether theproposed name is available for adoption or not. The confirmation of the name made availableby the Registrar shall be valid for a period of six months from the date of letter issued in theseregards. In case, if the promoters fails to submit all the required documents for incorporationwithin that period, then they are required to submit another application for revalidation ofname with fresh filing fee of Rs. 500 onlyPreparation of the Memorandum of Association (MOA)6 and Articles of Association (AOA)7Drafting of the MOA and AOA is generally a step subsequent to the availability of name madeby the Registrar. It should be noted that the main objects should match with the objects shownin e-Form 1A. These two documents are basically the charter and internal rules and regulationsof the company. Therefore, it must be drafted with utmost care and with the advice of theexperts and the other object clause should be drafted in a very broader sense.Estimate of registration fees for a new companyThe fees payable to the Registrar at the time of registration of a new company varies accordingto the authorized capital of a company proposed to be registered as per Schedule X to the Act.Fees can be calculated at the MCA portal using fees calculator8.Filing of documents with the RegistrarNext step for the promoters is to file the following documents with the Registrar forincorporation of the company. The following documents shall be submitted to the Registraralong with the adequate filing fees as applicable for registration of the company electronicallyon line basis within a period of six months from the date of intimation of availability of name:—(i) Memorandum of Association9, duly signed by the subscribers and witnessed, showing thenumber of shares against their names electronically attached in PDF file. It should also beproperly stamped as per the stamp duty applicable in the State, where the registered office of5 Notification No. GSR 56(E) dated 10th Feb., 20066 Section 2(28) of Companies Act 19567 Section 2(2) of Companies Act 19568 Schedule X to the Act9 Supra 65 COMPANY LAW PROJECT.
  6. 6. FORMATION OF A PRIVATE LIMITED COMPANYthe company is to be situated. Photographs of the subscribers shall also be attached.Simultaneously original stamped copy of the Memorandum of Association shall be submitted(physical submission) with the Registrar of Companies concerned.(ii) Articles of Association10 should also be duly signed by the subscribers and witnessed,showing the number of shares against their names electronically. It should also be properlystamped according to the authorised share capital. Photographs of the subscribers shall also beattached. Simultaneously original stamped copy of the Article of Association shall be submittedwith the Registrar of Companies concerned.(iii) Copy of the agreement, if any, which the company proposes to enter into with anyindividual for appointment as its managing or whole-time director or manager shall be attachedin the PDF file.(iv) Declaration in e-Form 1 by an advocate or company secretary or chartered accountantengaged in whole time practice in India or by a person named in the Articles as a director,manager or secretary of the company, that all the requirements of the Companies Act, 1956and the rules made thereunder have been complied with in respect of registration.11(v) Power of Attorney for should be furnished by all the subscribers in favour of any onesubscriber or any other person authorising him to file these documents and to with theRegistrar and to obtain certificate of incorporation. The power of attorney should be given onNon-Judicial stamp paper of appropriate value and shall be submitted to the Registrar.(vi) Other agreement if any, which has been stated in the Memorandum or Articles ofAssociation shall also be filed in the PDF file with the Registrar because in such cases theagreement will form part of this basic document.(vii) E-Form 18 is to be filed with the Registrar electronically with the digital signatures in regardto location of the registered office. E-Form 18 shall also be certified by the company secretaryor chartered accountant or cost accountant in whole-time practice.12(viii) E-Form 32 is required to be filed with the Registrar electronically for filing particulars ofdirectors.Following additional details are also required to given in e-Form 3213:E-Form 32 is required to be digitally signed by the director or managing director or manager orsecretary of the company. E-Form 32 shall be filed along with the adequate filing fee asprescribed under Schedule XIII of the Companies Act, 1956.10 Supra 711 Section 33(2) of the Act12 Section 146(2) of the Act13 Schedule XIII of the Companies Act, 19566 COMPANY LAW PROJECT.
  7. 7. FORMATION OF A PRIVATE LIMITED COMPANYSUBMISSION OF E-FORM 1E-Form 1 has to be submitted with following enclosures:(1) Memorandum of Association (MoA) and Article of Association (AoA) of the company [Notrequired for a company licensed under section 25];(2) Annexure containing details of subscribers (Optional);(3) Power of Attorney/Authority letter given by the subscribers/promoters/directors to theprofessional i.e. advocate or attorney or pleader or CS or CA (in whole-time practice) forformation of a company.(4) Copy of Memorandum of Association (MoA) and Article of Association (AoA) after stampingand physically signed by all the subscribers should be delivered at the RoC office wherecompany is to be registered.In case, if any subscribe put his name, and other descriptions and sign in a language other than,in which the Memorandum and Articles of Associates, then it is required by the witness to givestatement that he had explained the contents of all the documents in such language and thesubscriber has signed the same after proper understanding of the same.Further that an Affidavit on the stamp paper of adequate value that he had been explained thecontents of the Memorandum and Articles of Association and all other relevant documents forincorporation of the company and he/she had put his/her signature after proper understandingof the same and this affidavit should also be furnished with the Registrar along with all thedocuments as described above.Certificate of Incorporation 14On the satisfaction of the Registrar that the requirements specified in sections 33(1) and 33(2)have been complied with by the company, he shall retain the documents and register the MOA,AOA and other documents. Section 34 (1) cast an obligation on the Registrar to issue aCertificate of Incorporation, normally within 7 days of the receipt of documents. It is advisableto authorize some person to collect the certificate personally from ROC officeCommencement of Business 15A Private limited company and a company not having share capital may commence its businessactivities from the date of its incorporation. However, a Public Limited Company having sharecapital is also required to obtain a separate certificate of commencement of business accordingto section 149(2A) of the Companies Act, 1956.14 Sections 33 and 34 of the Act15 Section 149(2A) of the Companies Act, 19567 COMPANY LAW PROJECT.
  8. 8. FORMATION OF A PRIVATE LIMITED COMPANYCompany Formation in India – Private Limited16The following article disucsses the process of forming a limited liability company in India. Thelaws relating to registration of a limited liability company in India is contained in CompaniesACt, 1956. Registrars of Companies (ROC), appointed under Section 609 of the Companies Act,by the Ministry of Corporate Affairs (MCA), is vested with the primary duty of registeringcompanies and of ensuring that such companies comply with statutory requirements under theAct. A company can be registered with the ROC of the state under whose jurisdiction theproposed company’s registered office will be situated.Pre- Registration Requirements17A Private Limited Company must have a Paid-up capital of INR 100,000 and a Public LimitedCompany must have a paid-up capital of INR 500,000. A Private Limited Company must have aminimum of two directors and two shareholders and Public Limited Company must have aminimum of three directors and seven shareholders.The directors must have a valid Director Identification Number (DIN), allotted by the Ministryof Corporate Affairs. DIN is a unique identification number for an existing director or a personintending to become a director of a company. As per a recent amenedment to the Companies Act1956, DIN has become mandatory for all the directors. DIN is unique and specific to anindividual therefore only one DIN is allotted per individual even if the individual serves asdirector at multiple companies. Application for the allotment of Director Identification Number(DIN) can be obtained online on MCA’s website. Duly completed DIN Application Form mustbe mailed to MCA DIN Cell, along with a proof of identity and a proof of residence with coloredphoto. The photo affixed on the form and the proofs attached must be certified by a PublicNotary or Gazetted Officer or any certified professionals. No fee is charged for issuing DIN.This process takes approximately 3 to 5 working days.At least one of the directors should have a valid Digital Signature Certificate issued by theCertifying Authorities (CA) and approved by the Ministry of Corporate Affairs. The InformationTechnology Act, 2000 provides for use of Digital Signatures on the documents submitted inelectronic forms, in order to ensure the security and authenticity of the documents filedelectronically. Every document prescribed under the Companies Act, 1956, is required to be filedwith the digital signature of the managing director or director or manager or secretary of thecompany. Therefore at least one of directors must have a digital signature. Any person may makean application to the Certifying Authority for the issue of a Digital Signature in such form asmay be prescribed by the Central Government. Digital Signatures are typically issued with oneyear validity and two year validity. The issuance cost varies depending on the CA. DigitalSignatures can be obtained within an hour.16 Companies House Filing Obligations: A Breakdown8 COMPANY LAW PROJECT.
  9. 9. FORMATION OF A PRIVATE LIMITED COMPANYName Approval18The first step in the process of formation is the application for MCA’s approval of the desiredname for the proposed company. Once, Company name is allotted, company registrationdocuments are filed with respective ROC for registration. Application for name approval can bemade online via MCA’s portal MCA 21.Forms are available here.The following particulars are required to complete the form Name of the proposed company Location of registered office of the proposed company Main Objectives of the business of the company Names of Subscribers to the Memorandum of Association Proposed Authorized Share Capital of the Company DIN & DSCSelect, at least four names (a maximum of Six names can be listed), and indicate the order ofpreference. Ensure that the company name is in accordance to the guidelines of the MCA, andalso ensure the name is unique and does not resemble the name of any existing company in India.The company name must end with the words ‘Private Limited’ or ‘PVT Ltd’. In order to havespecific key words in the name such as corporation, International, Hindustan, Industries, Indiaetc., the proposed company should satisfy a minimum authorized capital criteria. Duly completedForm 1A for name approval must be must be submitted to the concerned ROC along with a feeof INR 500/-.19The Registrar shall intimate, within two to three days, whether the proposed name is available ornot. If the preferred name is not available apply for a fresh name on the same application. Thename made available by the Registrar shall be valid for a period of six months. In case, if thecompany is not incorporated within this validity period, an application may be made for renewalof name by paying additional fees. Otherwise the name approval process has to be repeated bysubmitting new application after payment of requisite fees.2018 AIR 1958 BOM 24719 ibid20 Narmada enterprise v. State Of Maharashtra9 COMPANY LAW PROJECT.
  10. 10. FORMATION OF A PRIVATE LIMITED COMPANYPreparation of DocumentsAfter obtaining name approval from the ROC the following documents must be prepared toincorporate the company21 Memorandum of Association (MOA) Articles of Association (AOA) Form 1 – providing details of promoters of the company Form 18 – providing details of registered office of the company Form 32 – providing details Directors of the companyThe Memorandum of Association is a document that sets out the constitution of the company. Itcontains, amongst others, the objectives and the scope of activity of the company and alsodescribes the relationship of the company with the outside world.The Articles of Association contain the rules and regulations of the company for the managementof its internal affairs. While the Memorandum specifies the objectives and purposes for whichthe Company has been formed, the Articles lay down the rules and regulations for achievingthose objectives and purposes. It also states the authorized share capital of the proposed companyand the names of its first / permanent directors.Professional help is to be sought in the drafting of the MOA and AOA, as it contains thegoverning policies, rules and by-laws of the proposed venture. The draft must be carefully vettedby the promoters before printing and stamping.The MOA and AOA must be signed by at least two subscribers in his own hand, along withfather’s name, occupation, address and the number of shares subscribed for and witnessed by atleast one person.22Then the MOA and AOA are required to be stamped & filed with the ROC. A stamp duty isrequired to be paid on the MOA and on the AOA. The stamp duty depends on the authorizedshare capital and varies between states. Details of applicable stamp duty can be obtained fromhere. eStamping facility is now available via MCA’s portal. The document preparation processmay take five to seven days.2321 AIR 1973 Cal 7822 Re paradise enterprise ltd case ,(1989) 3 comp. LJ 24823 ibid10 COMPANY LAW PROJECT.
  11. 11. FORMATION OF A PRIVATE LIMITED COMPANYSubmission of Documents24Submit the following documents to the ROC with the filing fee and the registration fee: The stamped and signed Memorandum and Articles of Association (3 copies). Form-1, 18 & 32 in duplicate. Any agreement referred to in the Memorandum & Articles. Any agreement proposed to be entered into with any individual for appointment as Managing or whole time Director. Declaration of Compliance by an advocate or company secretary or chartered accountant or director, manager or secretary of the company Name availability letter issued by the ROC. Power of Attorney authorizing a person, on behalf of subscribers, any documents and papers filed for registration. The power of attorney should be given on Non-Judicial stamp paper of appropriate value and shall be submitted to the RegistrarPayment of Registration FeesThe fees payable to the Registrar at the time of registration of a new company varies accordingto the authorized capital of a company proposed to be registered. Payment for the Registrationand Filing Fee must be made by Demand Draft/Banker’s Cheque if it exceeds Rs.1000/.Obtaining Certificate of Incorporation25The ROC will issue a Certificate of Incorporation after careful review of documents submitted.Section 34(1) cast an obligation on the Registrar to issue a Certificate of Incorporation, normallywithin 7 days of the receipt of documents.A Private Limited Company can start its businessimmediately on receiving the Certificate of Incorporation.24 ibid11 COMPANY LAW PROJECT.
  12. 12. FORMATION OF A PRIVATE LIMITED COMPANYCompliance Requirements for Companies in India26The Companies Act, 1956 has elaborate provisions relating to the Governance of Companies,which deals with management and administration of companies. It contains special provisionswith respect to the annual compliance requirements. Companies incorporated under the Act haveto file various forms, returns and documents under various sections with the Registrar ofCompanies (ROC) in an electronic mode within the prescribed time along with the prescribedfees or with payment of additional fees in the event of delayed filing.As part of its major drive to promote egovernance, the Ministry of Corporate Affairs (MCA)launched MCA-21, a portal to facilitate e-filing. Physical filing of forms under Companies Acthas been discontinued. All filings, since September 30, 2006, are made through e-filing usingspecially designed e-forms.The general annual compliance requirements for both public and private companies are discussedbelow. The requirements for listed public companies are more extensive and not under the scopeof the discussion which is limited to the annual requirements relating to meetings, accounts,auditing, returns & changes or events.. Please seek professional advice for more details onregulatory requirements.Meetings As per the Provisions of Section 166 of the Companies Act, 1956, the Annual General Meeting (AGM) of a Company is required to be held once in every calendar year and not more than 15 months shall elapse between the date of one AGM and that of the next. This meeting can be held only in the same city or town, where the registered office is situated. A meeting of its Board of Directors must be held at least once in every three months and at least four such meetings shall be held in every year. Matters of concern shall be disclosed and discussed in such meetings. The meeting can be held anywhere in India. Meeting cannot be called through video conferencing.Accounts, Auditing & Returns The first annual accounts of a newly incorporated company should be drawn from the date of its incorporation up to the day not preceding the AGM date by more than 9 months. Thereafter Audited Annual Accounts for the period ending with the day, not preceding the AGM by more than 6 months, have to be placed in the said AGM. Companies are required to file the Annual Accounts with the Office of the concerned Registrar of Companies within 30 days from their AGM or where the AGM is not held, then within 30 days of the last date on which the AGM was required to be held.( Form 23AC and Form 23ACA) The accounts of the company must relate to a financial year (comprising of 12 months) but must not exceed 15 months. The company can obtain prior permission from the ROC for an extension of the accounting period to the extent of 18 months.26 COMPANY LAW PROJECT.
  13. 13. FORMATION OF A PRIVATE LIMITED COMPANY At each AGM, every company must appoint auditor or auditors. Such auditors are to hold office from the conclusion of that meeting until the conclusion of the next AGM and shall. Every auditor so appointed must be intimated within seven days of the appointment. Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company. Every company is required to maintain proper books of account according to the standards issued by the Institute of Chartered Accountants of India. The books shall maintain records of the following o All sums of money received and expended and the matters in respect of which the receipt and expenditure take place o All sales and purchases of goods by the company o The assets and liabilities of the company o In case of companies engaged in manufacturing, processing, mining etc, such particulars relating to utilization of material or labor or other items of cost The books of account relating to eight years immediately preceding the current year together with supporting vouchers are required to be preserved in good order. Every company having a share capital is required to file an annual return with the ROC within 60 days from the date on which the AGM of the company was held or where the AGM is not held, then within 60 days of the last date on which the AGM was required to be held. (Form 20B). The return is to be duly signed digitally and the requisite certificates to be attached. In case of a company whose shares are listed on a recognized stock exchange, the return must be signed digitally by a secretary in full-time practice. Companies with a Paid-up capital between INR 1million and INR 20 Million are required to file an annual compliance Certificate (Form 66) from a Company Secretary in whole time within 30 days from the date of annual general meeting, along with the Annual Report.Registers Register of Member, Register of Directors, Register of Contracts, Register of Charges, etc. The registers are required to be kept at the registered office of the company. The directors are required to inform the company about their directorship in other companies every yearEvent Based ComplianceApart from above annual compliance requirement companies are required to report events to theROC. Events requiring reporting compliance are Receipt of share application money Allotment of shares Transfer of shares Appointment/Resignation of directors Appointment of Managing Director/ Whole Time Director Executing agreement with related parties Change in the Bank signatories13 COMPANY LAW PROJECT.
  14. 14. FORMATION OF A PRIVATE LIMITED COMPANY Change in the statutory auditors Change in registered address Changes in any of the registered particularsFiling of Tax ReturnsCompanies have to file their annual corporate tax returns. Additionally Companies who provide a service to their customers must file their service tax returns every six months. Companies that sell a product must file annual sales tax or submit their value added tax returns. Companies located in states where professional tax registration is mandatory, must file the annual professional tax returns of each of their employees for whom they have deducted professional tax.Directors Responsibility in ComplianceThe Directors are held responsible for all ongoing compliance requirements. Directors mustensure that the company’s activities do not deviate from the MOA. Non compliance will attractheavy fine or even prosecution at the Court of Law. Any changes in registered particulars shouldbe promptly reported to the Registrar of Companies. Directors must ensure that the company actsin trustworthy manner without any willful negligence of its obligations, and disclose trueinformation about its financial status and business activities.14 COMPANY LAW PROJECT.
  15. 15. FORMATION OF A PRIVATE LIMITED COMPANYRule of Incorporating a private ltd company: 1. A minimum of two directors are required and minimum two sh. holders 2. The right to transfer share is restricted as per the AOA 3. An invitation to the public to subscribe to any sh. Or deb. Is prohibited. 4. The no. of sh.hol. is limited to 50 5. No invitation or acceptance of deposits from persons other than members, directors or their relatives is allowed. 6. Lesser number of compliance requirementsThe processObtain Director Identification numberTime taken : one dayGet your digital signature certificateTime taken: Four daysCharge: Rs 400 to Rs 2650Get the name of the company approvedTime taken: Two to three days (within seven days)Charge: Rs 500Memorandum and articles of association vetted and printedTime taken: within six months of name approvalCharge: NilGet the documents stampedTime taken: One dayCharge: Stamp duty varies from state to stateGet the memorandum and articles signed by at least two subscribersTime taken: One dayCharge: NilGet the certificate of incorporationTime taken: Five to ten daysCharge: Registration fee varies on the basis of the company’s authorized capital15 COMPANY LAW PROJECT.
  16. 16. FORMATION OF A PRIVATE LIMITED COMPANYSUMMARYTo register a company, you need to first apply for a Director Identification Number (DIN) whichcan be done by filing eForm for acquiring the DIN. You would then need to acquire your DigitalCertificate and register the same on the portal. Thereafter, you need to get the company nameapproved by the Ministry. Once the company name is approved , you can register the companyby filing the incorporation form depending on the type of company.Step 1 : Application For DINThe concept of a Director Identification Number (DIN) has been introduced for the first timewith the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such, allthe existing and intending Directors have to obtain DIN within the prescribed time-frame asnotified.You need to file eForm DIN-1 in order to obtain DIN. To get more information about the sameclick Documents required for DINA. Identity Proof (Any one of the following)PAN CardDriving LicensePassportVoter ID CardOthers (to be specified)B. Residence Proof (Any one of the following)Driving LicensePassportVoter ID CardTelephone BillRation CardElectricity BillBank StatementOthers (to be specified)Step 2 : Acquire/ Register DSCThe Information Technology Act, 2000 provides for use of Digital Signatures on the documentssubmitted in electronic form in order to ensure the security and authenticity of the documentsfiled electronically. This is the only secure and authentic way that a document can be submittedelectronically. As such, all filings done by the companies under MCA21 e-Governanceprogramme are required to be filed with the use of Digital Signatures by the person authorised tosign the documents.16 COMPANY LAW PROJECT.
  17. 17. FORMATION OF A PRIVATE LIMITED COMPANYAcquire DSC -A licensed Certifying Authority (CA) issues the digital signature. CertifyingAuthority (CA) means a person who has been granted a license to issue a digital signaturecertificate under Section 24 of the Indian IT-Act 2000.Register DSC -Role check for Indian companies is to be implemented in the MCA application.Role check can be performed only after the signatories have registered their Digital signaturecertificates (DSC) with MCA. To know about it click Register a DSCStep 3 : New User RegistrationTo file an eForm or to avail any paid service on MCA portal, you are first required to registeryourself as a user in the relevant user category, such as registered and business user. To registernow click New User RegistrationStep 4 : Incorporate a CompanyApply for the name of the company to be registered by filing Form1A for the same. After thatdepending upon the proposed company type file required incorporation forms listed below.Form 1 : Application or declaration for incorporation of a companyForm 18 : Notice of situation or change of situation of registered officeForm 32 : Particulars of appointment of managing director, directors, manager and secretary andthe changes among them or consent of candidate to act as a managing director or director ormanager or secretary of a company and/ or undertaking to take and pay for qualification shares17 COMPANY LAW PROJECT.
  18. 18. FORMATION OF A PRIVATE LIMITED COMPANYCONCLUSIONThe registration of companies as also subsequent filings can be done online. Still, there are acouple of stages where an authorized person has to make a personal appearance—for instance,during the vetting of the memorandum and articles of association and during the stamping of thedocuments.Before starting the process of registering your company, the prospective directors must havedirector identification numbers (DIN) and digital signature certificatesAfter acquiring the two, you have to get the name of the company approved by the concernedRegistrar of Companies (RoC), which is done by filling Form 1A. You can give a maximum ofsix names and the RoC replies within seven days as to the availability of the names. In practice,however, the name-approval process only takes two to three days. (See Box the process)Once the name is approved, the next step is drafting the memorandum and articles ofassociation (MoA and AoA). The difference between the two is that the articles contain onlythose clauses that define the internal functioning of the company. On the other hand, thememorandum of a company defines important clauses such as authorized capital clause and theobject clause. The authorized capital clause determines the extent to which the ownership basecan be expanded by issuing fresh shares or other instruments in the future. The object clausedefines the objectives of the company and has two sections; one for the main objectives and thesecond describing the other businesses that you might want to get into at a later stage.After the MoA and AoA are prepared they are printed and sent to the concerned registrar forvetting and to mark out objections, if any. The documents are then stamped (the stamp dutyvaries from state to state) and finally all the documents along with some other details likeparticulars of appointment of managing director, directors, manager and secretary are sent to theconcerned registrar.The last step is to pay the registration fee, which varies on the basis of the company’s authorizedcapital, after which the company gets registered as a private limited company under theCompanies Act, 1956 and gets its certificate of incorporation.The whole process to get the certificate of incorporation for a private limited company takesroughly about 15-20 days. One thing to keep in mind is that the registration must be done at theregional office of the Registrar of Companies where the registered office is to be located.There are some more things that are required by a private limited company, like getting apermanent account number and a company seal, after it is registered. However, unlike a publiclimited company, a private company can begin its operation right after getting a certificate ofincorporation and complete the rest of the formalities simultaneously.18 COMPANY LAW PROJECT.
  19. 19. FORMATION OF A PRIVATE LIMITED COMPANY BIBLIOGRAPHY WEBSITES BOOKS Ramaiya Guide to Companies Act, 17th Edn Lectures on Company Law and Competition Act, Author: KS Anantharaman Company law, 5th edition , Dr N.V. Paranjape19 COMPANY LAW PROJECT.