Benefits of Company Formation in India
Company Formation has many advantages for the business;
- The company can buy, sell and hold property in its own name.
- The company can sue and get sued in the law of court without personal involvement of directors.
- Ownership of the company is easily transferable.
- There is no liability of its member as it is a separate entity.
- The company has a common seal
- It provides perpetual succession to the company. This means it continues in the long run and death of any director does not affect the running of the business.
- It provides benefit on the taxation front as individuals pay income tax and companies avail the benefit of corporate taxes.
Registration of a Company Name in India
For the purpose of registration of a company, the company has to first obtain a registered name for which they have to submit the application to the registrar for checking the availability or similarity to a previously registered name. With the application they also have to submit alternative names in the order of priority in case of the rejection of the proposed name. Once the registrar is satisfied then the name is registered.
According to the MCA guidelines these are the few things on the basis of which a name falling in the categories mentioned below will not generally be made available:
- If it is not in consonance with the principal objects of the company as set out in its memorandum of association. This does not necessarily mean that every name should be indicative of its objects. But when there is some indication of business in the name then it should be in conformity with its objects.
- If the Company / Companies main business is finance unless the name is indicative of that particular financial activities. Viz. Chit Funds / Investments / Loan, etc.
- If it includes any word or words which are offensive to any section of the people.
- If the proposed name is the exact Hindi translation of the name of an existing company in English especially an existing company with a reputation.
- If the proposed name has a close phonetic resemblance to the name of the company in existence for example, J.K Industries Ltd., Jay Kay Industries Limited.
- If the name is only a general one like Cotton Textile Mills Ltd., or Silk Manufacturing Ltd., and not specific like Calcutta Cotton Textiles Mills Limited or Lakshmi Silk Manufacturing Company Limited.
- If it includes, the word “Co-operative”, Sahakari or the equivalent of word “Co-operative” in the regional languages of the country.
- If it attracts the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950 as amended from time to time, i.e. use of improper names prohibited under this Act.
Procedure for Company Formation in India
The procedure for company formation or incorporation of a company in India involves several steps as provided under the Indian Companies Act and they are:
- Application for obtaining Director Identification Number (DIN) from the Ministry of Corporate Affairs.
- Search for a company name- This step requires search of company name and the availability of names can be checked at the website of Ministry of Corporate Affairs (MCA). Availability of company names can be checked at http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=16 .
- Application of proposed name- An application for proposed company name is to be filed with the Registrar of Companies (ROC).
- Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)- Some of the most critical documents involved in incorporation of a company are MOA and AOA. MOA covers the fundamental provisions involved in the company’s formation and an AOA covers the rules and regulations governing the internal management of a company.
- Filing of Forms with the ROC- The procedure for incorporation of company requires filing of some essential Forms with the ROC, like Form INC-7 (form for incorporation of company), Form INC-22 (form for notice of situation of registered office), Form DIR- 12 (providing information about particulars of appointment of Directors).
- ROC fees and Stamp Duty payment
- Thereafter, documents filed for incorporation of company will be verified by ROC
- Pursuant to verification of documents, the ROC will issue a “Certificate of Incorporation” to the company. Thereafter, the company can commence functioning.
Certificate of Incorporation and Certificate of Commencement
Certificate of Incorporation is a certificate which sanctions the existence of the companies once the registrar has scrutinized all the documents and have made necessary changes in MOA and AOA. Certificate of Incorporation is given to both Public and Private Companies. Certificate of Commencement is given after obtaining the Certificate of Incorporation and a Public Company having share capital cannot commence its business without this certificate. Whereas this is not necessary for commencement for Private Companies which can commence its business after receiving the Certificate of Incorporation.
Compliance for Companies in India
An investor, investing in India may choose from various types of entities depending on their own requirements. After deciding the type of entity, they want to invest in, the next step is to perform the required compliance according to the rules and regulations laid down by the respective Acts. Below mentioned are few of the compliances that an investor has to perform in order to get its business incorporated in India;
- Formation and Incorporation of the Company
- Checking the Foreign Direct Investment (FDI) allowed with respect to a foreign investor’s business operations.
- Requirement of various licenses and approvals from concerned central and state governmental authorities.
- Performing Intellectual Property Audit
- Tax compliances
- Appointment of auditors.
10 important terminologies used during incorporation of a company in India
Digital Signature & Digital Signature Certificate (DSC)
A Digital Signature is a digital code created for the purpose of affixing them on digital documents and proving equal authority as of the handwritten signature. A Digital Signature Certificate is a prima facie evidence of the signature which validates the authenticity of the signature. The Office of Controller of Certifying Authorities (CCA), issues the DSC only to Certifying Authorities which are the trusted entities who are responsible to issue Digital Signature Certificate to end-user.
Director Identification Number (DIN)
According to the MCA website DIN is a unique Identification Number allotted to an individual who is appointed as director of a company and it is compulsory for every director to have this number so as to create a database of the incorporated companies before they can get a company registered according to section 153 & 154 of the Companies Act, 2013. It can be obtained by filing the requisite form and prescribed fees with the Ministry of Corporate Affairs India (MCA).
Permanent Account Number (PAN)
PAN or Permanent Account Number is a mandatory document which an individual has to obtain for taxation purposes. It may be obtained through e-filing on the website of the Department of Income Tax.
Tax Deduction Account Number (TAN)
TAN or Tax Deduction Account Number is to be obtained by the person responsible to deduct tax, that is, the deductor. Application for new Tax Deduction Account Number can be done through online Form 49B by Income Tax Department.
Memorandum of Association
Memorandum of Association (MOA) is considered as the supreme document of the company and is submitted to registrar at the time of incorporation. The purpose of this is to lay down clear objectives of the company and the business that they tend to carry out under this company. It is advisable for a company to take legal help while drafting the Memorandum of Association. It has the following clauses:
- Name clause
- Registered Office Clause
- Object Clause
- Association Clause
- Capital Clause
- Liability Clause
Articles of Association
Articles of Association is a document containing all the rules and regulations that govern a company. This document has to be submitted to Registrar at the time of incorporation of a company.
When the total capital of a company is divided into shares, then it is called share capital. In other words, the capital for the running of the business collected by the company is known as share capital. Share capital is the total amount of capital collected from its subscribers or shareholders for the purpose of achieving the objectives of the company.
According to Section 2(8), it is the capital as authorized by the memorandum of a company to be the maximum amount of share capital of the company.
According to Section 2(64) it means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called. Minimum paid-up capital for Private Companies is INR 1 lakh and Public Companies is INR 5 lakhs.
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