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Incorporation of Company in India

 

Under the existing Indian Rules & Regulations, a company can be a Private Limited  Company or  Public Limited Company  or  a One Person Company.

 

What is a Public Limited Company?

A Public Limited Company is a Company limited by shares must have minimum paid-up share capital of Rs. Five Lakh. 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 is 7 (Seven).

 

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.  Even, the number of shareholders can be increased upto maximum permissible limit under the Companies Act, 2013.
  • 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 or withdrawal of capital by 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.  
  • 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 the corporate entities.
  • 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 directors are treated as employee/shareholder/trusty.
  • 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?

A Private Limited Company is a Company limited by shares  must have minimum paid-up share capital of Rs. One Lakh.  It can have maximum 200 (Two Hundred) shareholders and 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 minimum number of shareholders is 2.

 

 

Comparison between Private Limited Company & Public Limited Company:-

 

REQUIREMENT PRIVATE LIMITED COMPANY PUBLIC LIMITED COMPANY
Minimum Paid-up Capital of the Company INR 100000 INR 500000
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 Five members must be present personally to constitute quorum for any meeting, where number of Shareholders are less than 1000.
Transfer of Shares Restriction Can be imposed Restriction cannot be imposed

 
PROCEDURE FOR INCORPORATION OF PRIVATE LIMITED COMPANY


1. Acquire Digital Signature (DSC) and Director Identification Number (DIN) for the proposed Promoter director of the Company


2. Name Approval:
An application in Form No. INC 1 needs to be filed with the Registrar of Companies (ROC) of the state in which the Registered Office of the proposed Company is to be situated.  

Following details are required to be stated in the application:-

1. Five alternative names for the proposed company. The name can be coined names from the objects of the proposed company,   or the names of the directors, etc. but should definitely be indicative of the main object of the company.  The foreign nationals can have identical name of its  parent company, subject to terms & conditions as may be imposed by the ROC.
2. Details of Promoters and Directors of the Proposed Company
3. Authorized Capital of the proposed company.
4. Main objects of the proposed company.
5. Names of other group companies.
On submitting the application, the ROC scrutinizes the same and sends the approval / objections in about 10 days to the applicant. On fulfilling of the objections a formal letter of name approval is issued. Name will be allowed for 60 days only from the date of filing of application for reservation of name.


3. Drafting of Incorporation documents

On receipt of the name approval letter from the ROC, the 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 business 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 / permanent directors of the proposed Company.


Documents required for incorporation of the company

The following documents are required to be executed (signed) before they are submitted to the ROC.

  • 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 7, Form INC 8,  Form INC 9, Form INC 10, Declaration by Directors, Form INC 22  Affidavit for non acceptance of Deposits,  DIR 12, Power of Attorney etc

Execution of  the documents before filing for Registration

Once the documents as stated above, are  properly drafted, these will be signed by the promoter directors and the consultant responsible for incorporation of the company. Further these documents needs to be notarized & legalized in case the documents has been signed outside India.   Thereafter these documents  will be submitted to the ROC for incorporation of the company alongwith requisite fee  as prescribed under the Act.


Issuance of certificate of incorporation by the ROC

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 under the Companies  Act, 2013..   
 

When can a newly incorporated company commence its  business operations?
A company can commence its business activities on receipt of  approval  of  declaration filed by the company in form No. INC 21 from the ROC.  In fact,  INC 21 confirms to the ROC that the subscribers of the MOA has paid their due contribution as per commitment made by them at the time of  incorporation of the company.


Time Schedule for Incorporation of Company

Normally a Private Limited Company can be presumed to commence its business activities  within 30-45 days provided the clients  furnished  proper detail and documents on time.


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.


What other approvals/formalities are required for foreign investor in India for commencement of business before and after setting up company in India?

  • Obtaining Permanent Account Number (PAN) from Income Tax Department
  • Obeying Shop and Establishments Act
  • Obtaining Import Export code Number from Director General of Foreign Trade
  • Software Technologies Parks of India registration (STPI) if required
  • RBI approval for foreign companies investing in India and FIPB approval, if required.
  • Filing of FGPR form for allotment of shares to the subscribers of the capital of the company.

 

Incorporation of Subsidiary of a Foreign company in India.

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. Some approvals are automatic, -RBI Approvals - though application is required for those approvals. Special Permission - FIPB Approvals - could be obtained to invest over and above the regular percentage allowed.  

 

Minimum Capital requirement for setting up a Private Limited Company

The minimum Capital requirements for incorporation of  Private Limited Company  is INR 1,00,000 or equivalent to USD/EURO (about USD 1,700/1250 EURO) and for  Public Limited Company it is INR 5,00,000 or equivalent to  USD/Euro ( about USD 8500 / about Euro 6250) . The company can increase its Authorized Capital any time, by  way of payment of  additional applicable fee to the Registrar of Company (ROC) in normal course of business.

 

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.

 

Registered Office:

Every company needs to be registered in India must have permanent place of business.  In fact, this is the address where all official correspondence take place during the course of business unless, until the company desires to have different correspondence address.  In the normal practice, the consultant office is being used to establish the company to begin with.   

 

Company Seal:

All companies must have an engraved seal made of metal or any other material.  It is needed to authenticate various contracts and other deeds including share certificates.
 

What is One Person Company?

One person  Company ( OPC) is a legitimate way to form a company with only one member. 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.

 

 


 

Contact PKP

 

Contact Person : Mr. Prakash Gupta

 

Email -  info@pkpconsult.com, pkpconsult1977@gmail.com

 

Telephone Numbers : +91-11-23382207/ 23388753

 

Mobile Number : + 91- 9811031841


 

 

Prakash K Prakash PKP Consult +91-9811031841 pkpconsult1977@gmail.com