Company Formation in India – Private Limited

The following article disucsses the process of forming a limited liability company in India. The laws relating to registration of a limited liability company in India  is contained in Companies ACt, 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 registering companies and of ensuring that such companies comply with statutory requirements under the Act. A company can be registered with the ROC of the state under whose jurisdiction the proposed company’s registered office will be situated.

Pre- Registration Requirements
A Private Limited Company must have a Paid-up capital of INR 100,000 and a Public Limited Company must have a paid-up capital of INR 500,000. A Private Limited Company must have a minimum of two directors and two shareholders and Public Limited Company must have a minimum of three directors and seven shareholders.

The directors must have a valid Director Identification Number (DIN), allotted by the Ministry of Corporate Affairs. DIN is a unique identification number for an existing director or a person intending to become a director of a company. As per a recent amenedment to the Companies Act 1956, DIN has become mandatory for all the directors. DIN is unique and specific to an individual therefore only one DIN is allotted per individual even if the individual serves as director 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 must be mailed to MCA DIN Cell, along with a proof of identity and a proof of residence with colored photo. The photo affixed on the form and the proofs attached must be certified by a Public Notary 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 the Certifying Authorities (CA) and approved by the Ministry of Corporate Affairs. The Information Technology Act, 2000 provides for use of Digital Signatures on the documents submitted in electronic forms, in order to ensure the security and authenticity of the documents filed electronically. Every document prescribed under the Companies Act, 1956, is required to be filed with the digital signature of the managing director or director or manager or secretary of the company. Therefore at least one of directors must have a digital signature. Any person may make an application to the Certifying Authority for the issue of a Digital Signature in such form as may be prescribed by the Central Government. Digital Signatures are typically issued with one year validity and two year validity. The issuance cost varies depending on the CA. Digital Signatures can be obtained within an hour.

Name Approval

The first step in the process of formation is the application for MCA’s approval of the desired name for the proposed company. Once, Company name is allotted, company registration documents are filed with respective ROC for registration. Application for name approval can be made 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 & DSC

Select, at least four names (a maximum of Six names can be listed), and indicate the order of preference. Ensure that the company name is in accordance to the guidelines of the MCA, and also 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 have specific key words in the name such as corporation, International, Hindustan, Industries, India etc., the proposed company should satisfy a minimum authorized capital criteria. Duly completed Form 1A for name approval must be must be submitted to the concerned ROC along with a fee of INR 500/-.

The Registrar shall intimate, within two to three days, whether the proposed name is available or not. If the preferred name is not available apply for a fresh name on the same application. The name made available by the Registrar shall be valid for a period of six months. In case, if the company is not incorporated within this validity period, an application may be made for renewal of name by paying additional fees. Otherwise the name approval process has to be repeated by submitting new application after payment of requisite fees.

Preparation of Documents

After obtaining name approval from the ROC the following documents must be prepared to incorporate the company

  • 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 company

The Memorandum of Association is a document that sets out the constitution of the company. It contains, amongst others, the objectives and the scope of activity of the company and also describes the relationship of the company with the outside world.

The Articles of Association contain the rules and regulations of the company for the management of its internal affairs. While the Memorandum specifies the objectives and purposes for which the Company has been formed, the Articles lay down the rules and regulations for achieving those objectives and purposes. It also states the authorized share capital of the proposed company and the names of its first / permanent directors.

Professional help is to be sought in the drafting of the MOA and AOA, as it contains the governing policies, rules and by-laws of the proposed venture. The draft must be carefully vetted by the promoters before printing and stamping.

The MOA and AOA must be signed by at least two subscribers in his own hand, along with father’s name, occupation, address and the number of shares subscribed for and witnessed by at least one person.

Then the MOA and AOA are required to be stamped & filed with the ROC. A stamp duty is required to be paid on the MOA and on the AOA. The stamp duty depends on the authorized share capital and varies between states. Details of applicable stamp duty can be obtained from here. eStamping facility is now available via MCA’s portal. The document preparation process may take five to seven days.

Submission of Documents

Submit 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 Registrar

Payment of Registration Fees

The fees payable to the Registrar at the time of registration of a new company varies according to the authorized capital of a company proposed to be registered. Payment for the Registration and Filing Fee must be made by Demand Draft/Banker’s Cheque if it exceeds Rs.1000/.

Obtaining Certificate of Incorporation

The 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, normally within 7 days of the receipt of documents.A Private Limited Company can start its business immediately on receiving the Certificate of Incorporation.

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