Incorporation of Company in India

 

Under the existing Indian Rules & Regulations, a person can incorporate  :

  1. Private Limited  Company
  2. Public Limited Company
  3. One Person Company (OPC)

 

What is a Public Limited Company?

A Public Limited Company is a Company limited by shares. In this case, 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. However, the liability of a Director / Manager/Officer of such a Company remains unlimited under certain circumstances. The minimum number of shareholders required is 7 (Seven). The Company must have 3 directors and one of them should be resident of India.

 

Advantages of a Limited Company

 

It has following advantages:

  • Members' (shareholders) financial liability confined to the amount of money they have not paid for shares subscribed/purchased by them.
  • Easy to appoint, retire or remove directors or any other officer of the company under the Companies Act, 2013.
  • The shareholders can contribute additional share capital or unsecured loan for business requirement time to time.
  • It is simple to admit business partner in the company by way of offering shares to the incoming partner of the company.
  • The death, bankruptcy of one member does not affect the company's ability to trade.
  • Easy to dispose of or part with whole or part of business of the company without disturbing ongoing business.
  • Financial Institutions are more comfortable with the corporate clients.
  • Corporate status  
  • Enjoying greater degree of confidence and trust by the public at large and Government Agencies.

 
Disadvantages of a Limited Company


It has the following disadvantages:

  • Financial details of the company are publicly available on Government website.  
  • The competitor/revival can watch technical development of the company as the same are available on public domain.
  • Regular and time consuming compliances under various statutes especially applicable to public limited companies whether it is closely held or widely held company.
  • Heavy penalties for non compliance or failed to comply timely.
  • Overall cost of maintaining corporate structure is heavy.
  • Professional and legal advice is needed on day to day working.
  • The advantages of limited liability of the directors remains on the paper as the Financial Institutions and the Vendors invariably insist for personal guarantee before entering into any business commitment with the company.

 

What is a Private Limited Company?

Private Limited Company is most common and popular format of legal entity in India. It can have minimum two and maximum 200 (Two Hundred) shareholders. It cannot invite public for subscription of its shares or debentures. Further, the shares of Private Limited Company are not freely transferable under the Companies Act, 2013. 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. However, the liability of a Director / Manager/Officer of such a Company remains unlimited under certain circumstances. The company need to have minimum two directors and can have maximum of fifteen directors. One of the directors of the company must be Resident in India.

 

 

Comparison between Private Limited Company & Public Limited Company:-

 

REQUIREMENT PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
Minimum Paid-up Capital of the Company NIL NIL
Minimum number of Shareholders 2 7
Maximum number of Shareholders 200 No Limit
Number of Directors At least 2 Directors is required. Further, one Director must be Resident in India. At least 3 Directors is required. Further, one Director must be Resident in India.
Quorum Two members present personally to constitute quorum for any meeting

(i) Five members personally present (Number of Members less than 1000);

(ii) Fifteen members personally present (Number of Members lie between 1000-5000);

(iii) Thirty members personally present (Number of Members more than 5000).

Transfer of Shares Restriction Can be imposed Restriction cannot be imposed

 
PROCEDURE FOR INCORPORATION OF PRIVATE LIMITED COMPANY


STEP 1:

  • Obtain Business details from client.
  • Collecting documents such as KYC of Directors and Shareholders, DSC, DIN details, if any.
  • Preliminary name search and / or suggestion of available name for the proposed company


STEP 2:

  • Filing Name Application for reservation of name via SPICE + PART A (We recommend filing name reservation application and obtaining approval on it, before filing for incorporation to reduce the chances of rejection. Applying for Company Incorporation without reserving name involves inherent risk of rejection of the application by the Registrar either on technical ground or on merit).
  • Acquiring DSC for the Proposed Director(s) and Proposed Shareholder(s).


STEP 3:

  • Post approval of name preparing necessary documents for registration of the company.
  • Incorporation documents like Memorandum of Association (MOA) & Articles of Association (AOA), Form INC 9, Form INC 10 etc are required to be drafted. The MOA and AOA are charter documents of the company. Therefore, these documents should be drafted with due diligence and by a professional having in depth knowledge of the subject and applicable Indian Rules & Regulations.
  • The MOA states the main and incidental or ancillary objects of the proposed company. It also states the authorized share capital of the proposed company and the names of its promoters.
  • The AOA contain the rules and procedures for the routine conduct of the proposed company. It also states the names of its first directors of the proposed Company.


STEP 4:

  • Once the documents as stated above, are properly signed by the promoters, the consultant responsible for incorporation of the company will witness the signature and address of the promoters. Further these documents need to be notarized & legalized in case the document has been signed outside India. Thereafter these documents will be submitted to the ROC for incorporation of the company along with requisite fee as prescribed under the Act.
  • The Registrar of Companies on being satisfied about the documents filed and contents thereof will issue certificate of incorporation. The certificate so issued by the ROC is conclusive proof of incorporation of the company in India.


STEP 5:

  • Once the company has been incorporated, the requirement of compliances starts from the very first month
  • Compliances such as convening and conducting first Board Meeting within 30 days of incorporation, appointment of auditor, filing w.r.t. commencement of business are required to be completed

 

The following documents are required to be executed (signed) before they are submitted to the Registrar for incorporation of the Company:-

  • MOA and AOA - These are required to be executed by the promoters in their own hand in the presence of a witness in quadruplicate stating their full name, father's name, residential address, occupation, number of shares subscribed for, etc.
  • Other Incorporation Documents such as Form INC 8, Form INC 9, various Declaration and consent to act as director, Power of Attorney etc

One Person Company (OPC)

One person Company (OPC) is a legitimate way to form a company with only one member & Director. OPC can work like Proprietorship but it holds the status of company and of course enjoys the benefits that comes with it (limited liability, trust factor, least compliances etc, However, privilege of incorporation of OPC is available only to the Indian Residents.


FAQ ON SETTING UP PRIVATE LIMITED COMPANY.


Is there is any criteria for selection of the Name of the proposed company to be setup?

 

Yes. The proposed made should not be identical or similar to the existing name of a registered company or LLP or registered trade mark. It is advisable to avoid general name. at the same time the proposed name should disclose the activities of the company as far as it is possible to avoid rejection of name approval application.


Is there any documents which an promoter must have to set up Company ?

  • For Indian Nationals - PAN
  • For Foreign Nationals - Valid Passport


What are the documents required to establish identity?

  • For Indian Nationals – PAN / Valid Passport / Drivers License / Election ID / Ration Card / Aadhar ID
    For Foreign Nationals - Drivers License / Bank Statement / Latest Utility Bill / Passport
     
    ** Utility Bill / Bank Statement should be latest i.e. not older than 2 months.


What are the documents required for Residence Proof ?

 

  • For Indian Nationals - Bank Statement * / Utility Bill */ Telephone Bill * /Mobile Bill *
  • For Foreign Nationals - Bank Statement */ latest Utility Bill */ Telephone Bill * / Passport copy if it has address / Debit* / Credit Card* statement

         * should be latest i.e. not older than 2 months.

 


What are the documents required if the promoter is a corporate body ?

  • Charter Document of Foreign Corporate entity/MOA in case resident company.
  • Copy of Address proof of Foreign Corporate entity/Resident Company.
  • Certificate of Incorporation of corporate entity in their home country.
  • Board resolution authorising use of Name of entity (if the proposed company wishes to use name of such entity).
  • Board Resolution authorizing a representative to execute documents on behalf of company and certified KYC (Identity and Address Proof) of such authorized representative.


What is Minimum Capital requirement for setting up a Private Limited Company?

 

There is no minimum threshold to invest in Company.


Why I require Registered Office for my company?


Every company needs to be registered in India must have permanent place of business. In fact, this is the address where all official correspondence takes place during the course of business unless, until the company desires to have different correspondence address. Generally the consultants provide this facility to the companies to begin with. Shifting of registered office within the state is permitted under the Law without much compliance.


Can registered office of the company be at a residential property?


A company shall at all times have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it. Having registered office of company located at residential address is not bared under the Companies Act, 2013 but keeping in view the issues faced from local municipality it is always recommended to register your company at non-residential property.


What is time Schedule for Incorporation of Company?


It will depend upon the process you have opted for incorporation of the company. Normally it takes 10 to 15 days of time if the promoters has obtained prior approval of the name (RUN) or otherwise under the SPICE route, the company can be incorporated within 7 days of submission of complete documents.


When can a newly incorporated company commence its business operations?


A company can start its business activities only after bringing Paid up share capital as agreed in MOA & applying for certificate of Commencement of Business. This needs to be done within 6 months from the date of incorporation of company.


What is Difference between authorized capital and paid up capital?


The authorized capital is the capital limit 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 Authorized Capital of the Company.


Can NRIs and foreign nationals or foreign entities register a private limited company in India?


Yes, NRIs, foreign nationals and foreign entities can register a company in India either under automatic route or subject to approval by RBI depending upon the nature of activities being undertaken by the company after its incorporation. However, the Indian company must have one Indian national as one of the director of the company, a registered place of business in India.

 

How do comply with the legal formalities when the Foreign Nationals (Directors/shareholders) are not stationed in India?

 

The company can designate Indian director on the board to execute and sign necessary documents and deed on behalf of the company in the regular course of business without Foreign Nationals being physically present in India. Or else, the Foreign Nationals director can appoint "Alternate Director" to act on his behalf. In any case, under Companies Act, 2013, every Company incorporated in India must have one director on the board who must also stay in India for more than 180 days in a year.


Can a Foreign company established its subsidiary company in India?

 

Yes. A foreign company planning to form a subsidiary in India, in addition to meeting all requirements of forming a company, is required to seek governmental approval before investing in India. Government has altered its Foreign Direct Investment (“FDI”) policy and made investment procedure more liberal. Two routes for FDI have been specified under the policy i.e. Automatic Route and Government Route.


Under automatic route 100% (FDI) is allowed without approval of Reserve Bank of India or Government. The only requirement here is to notify the authority about the receipt of foreign investment.


Government route: Sectors not covered under automatic route requires approval of Government. The extant policy does not permit FDI in Atomic Energy, Gambling, Betting and Lottery business.


What is Company Seal?

 

The companies have an option to have a comman seal made of metal or any other material to authenticate various contracts and other deeds including share certificates. Common Seal should be adopted by a resolution of the Board (generally First Board Meeting) & impression of seal should be made part of the minutes of the meeting in which it is adopted).  

 


 

Contact PKP for Incorporation of Company in India

Contact Person : Mr. Prakash k Gupta

Email -  pgupta@pkpconsult.com

Telephone Numbers : +91-11-23382207/ 23388753

Mobile Number : + 91- 9811031841