A Beginner's Guide to Company Formation - Part 2

This is a guest post by Danyal Naqvi, a practicing Company Secretary.

As I had promised in my previous article "A Beginner's Guide to Company Formation" that I would brief you about the detailed procedure for the formation of a Private Company; here I am once again to do so. Hope this outlined and brief procedure helps the readers and budding entrepreneurs in understanding the simple, straight forward and an economic way of forming a Private Company.

Incorporation of Companies in India is regulated by the Indian Companies Act, 1956. Since, 2007 Registrar of Companies (ROC) has introduced a new system of e-filing, under which all forms are to be submitted online and the original documents in person. There are a cetain bare minimum requirements which need to be fulfilled before a company is incorporated.

company formation
Following Chart would make it clearer

           Private Company                                                     Public Company
                     ↓                                                                                ↓
Min Shareholders required = 2                                Min Shareholders required = 7
Min Directors required =2                                       Min Directors required = 3
Min Paid up Capital - INR 100,000                         Min Paid up Capital INR 500,000

Step by step procedure for incorporating a Company in India :

1. Obtain Director Identification Number (DIN) for each of the proposed Director and Digital Signature Certificates (DSC) for any one Director / Promoter before making any application to ROC.

2. Apply for the name availability of the proposed company to ROC. For this one has to fill e-Form 1A and submit online along with requisite fee (Rs.500) with ROC. The ROC generally informs the applicant within seven days from the date of submission of the application, whether or not any of the names applied for is available.

3. Once Name is approved and made available by the ROC it remains valid for 60 Days. If you do not incorporate the proposed company within 60 days you can renew the name by paying prescribed fee. You can choose a maximum of six names for the proposed company in order of your preference.

4. After getting the name approved following documents are prepared:
       a. Memorandum of Association (Charter of the Company)
       b. Articles of Association (Rules and By Laws of the Company)
Both the above documents are duly prepared by the Company Secretary or the Chartered Accountant and as such the people getting their company formed need not bother about their preparation.

5. Letter of authority (Power of Attorney on a Stamp paper of prescribed value) to a person for carrying out corrections/ alterations or deletions before the Registrar in respect of the documents to be filed for the proposed company.

6. e-Form 1, for Application or Declaration by the Promoter and/or Directors for incorporation of a company. This form contains all the basic details about the promoters, number of shares subscribed by them, the main industrial activity in which the company shall be engaged in etc.

7. e-Form 32 for the Directors. This Form is for the purpose of appointing the first directors of the company who shall manage the affairs of the company on its incorporation. Also these directors are named in the Articles of Association of the Company as the first directors of the company.

8. e-Form 18 for registered office address. This form describes the exact address of the place where the registered office of the Company shall be situated on its incorporation.

9. On the receipt of the documents, ROC will scrutinize the papers and if any modification is required he will direct to make such changes accordingly.

10. Once ROC is satisfied and scrutiny is completed he will issue CERTIFICATE OF INCORPORATION. The company would come into existence from the date of certificate of incorporation. This certificate is conclusive evidence that all the necessary formalities with regard to incorporation have been duly complied with and met and that the company is now existent and competent to commence business as a separate legal entity.

I hope that with this article I am able to answer the probable queries and the misconceptions about the cumbersome procedure of company formation in India. In this modern corporate world, technology has made the process of forming a private company an easier task than learning to ride a bicycle. I have also mentioned earlier and I am also pointing out again that above all it is far better to go in for a company than going in for a sole proprietorship or a partnership.

If you have any query regarding the process and formalities of incorporation of a company in India, please feel free to leave a comment and we will get back to you ASAP

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Related Article :
A Beginner's Guide to Company Formation

Share your views...

6 Respones to "A Beginner's Guide to Company Formation - Part 2"

Arpana said...

I went through the contents in detail perhaps it takes longer for lay man to grasp the details.Really informative!

October 30, 2010 at 1:19 AM
Nandan Narula said...

@ Arpana : Welcome to MONEY MATTERS and thanks for your valuable feedback. It may sound a bit cumbersome for a common man but Company form of business is gaining popularity with the SME sector also.

Danyal said...

Well..Arpana; it used to take a long time and it was a cumbersome process when it was done through physical mode. Now with everything becoming online it is a speedy and an effective task to incorporate a company. Yeah u can say that its a tough job for a common man to understand a detailed procedure involved. But then we are always here to help them carve their way out..I thank u for your feedback..Hope to see you on moneymatters again very soon.

October 30, 2010 at 11:27 AM
Tarun Mitra said...

I am Company Secretary, and honestly, you have provided the processes in the simplest possible terms without resorting to any jargon that we usually use, but those 'jargons' are necessary..say what if you are asked to make any modifications, then you require eform 67 or what if what to amend any information then comes eform 68.

Even the entire system is digitized still, it can take any time from 6 days to 3 months to incorporate a company.

In my opinion it would be better if you just inform the readers to consult an expert before retorting to anything.

In my professional life I have seen situations where the promoters have themselves applied for DIN, have provided different information while filing eform 32.

December 9, 2010 at 12:56 AM
Nandan Narula said...

@ Tarun Mitra : Welcome to MONEY MATTERS and thanks a lot for your valuable feedback. In no case can the text of this article replace the need of consulting a professional. I, along with my team of experts, try our best to spread awareness about various issues related to finance, money and business in a simple and crisp language.
And yes of course, as rightly pointed out by you, the procedure may get slightly altered on a case to case basis due to reasons like amendments in the documents filed, delay at the part of RoC etc.

Hope to see you again @MONEY MATTERS with your valuable insights

Nandan Narula

Danyal said...

@Tarun Mitra..Sir thanx a lot for your feedback and sharing your valuable experience with us...I would like to mention that I have prepared this article for the budding entrepreneurs who want to establish themselves as corporate individuals..For them mentioning about the e forms like 67 and 68 is of no use because as such they are basically concerned with the formation and not how it is formed.. That work of 'HOW' is basically our work and we as professionals have the duty to comply with all these.. If i had mentioned about all these things that would have made the article a lengthy and a difficult one to understand in a layman's language...I hope that u r getting my point sir..Well I also hope to see your valuable comments on my upcoming articles and also that i would try my level best to inculcate your suggestions in the future..

December 9, 2010 at 10:23 PM

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