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COMPANY FORMATION

ARPITA PAREKH

WELINGKAR INSTITUTE OF MANAGEMENT

DEVELOPMENT & RESEARCH

YEAR OF SUBMISSION: - APRIL, 2011

ACKNOWLEDGEMENT


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CERTIFICATE FROM THE GUIDE

This is to certify that the Project work titled COMPANY FORMATION is a

bonafide work carried out by ARPITA PAREKH (Admission No.) ..............

a candidate for the / Post Graduate Diploma examination of the Welingkar

Institute of Management under my guidance and direction.

SIGNATURE OF GUIDE:

NAME : MANAN UDANI

DESIGNATION: COMPANY SECRETARY

ADDRESS : B-17, SHANTI NAGAR

S.V. ROAD,

MALAD (WEST),

MUMBAI - 400064

STAMP/SEAL OF THE ORGANIZATION

DATE: ________

PLACE: MUMBAI


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Table of contents

TITLE PAGE

CERTIFICATE FROM THE GUIDE

ACKNOWLEDGEMENT

A. INTRODUCTION

B. BACKGROUND

C. METHODOLOGY

D. CONCLUSION

E. RECOMMENDATION

F. LIMITATION

G. BIBLOGRAPHY


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I NTRODUCTION:-

BUSINESS START UP IN INDIA

Pursuance of economic activity for the purpose of earning profit and acquiring wealth is a

common phenomena among all business enterprises, be it Industry-based or commerce-

oriented. With the kind of scope that the term business has, the activities that come under the

purview of business may be categorized into Industry and Commerce. The term Industry

covers the entire span of economic activities related to production of goods and services.

The term Commerce, on the other hand, is related to economic activities related

to the distribution of goods and service. Generally businesses are started by ambitious

individuals or by a group of friends in partnership. These new entrepreneurs start business with

a vision to churn out a profitable business out of whatever little resources and efforts they put

in and in return expect to be owners of a successful concern down the line. As

starting a business is no childs play, it is important to decide on the subject matter

of the business very carefully, i.e. what would be the nature of the products, the

magnitude of the work force, materials, infrastructure, market research and so on.

Ideal is to consider all aspects to setting up of a business and follow proper steps towards

starting the business.

BUSINESS REGULATORY REQUIREMENT

There are some specific regulatory business requirements to be considered at the time of setting

up a new business each time. For example, entrepreneurs in public and private companies have

to adhere to the rules and regulations of the Companies Act 1956. The act clearly lays down

provision for formation of company, powers of directors and managers, responsibilities of

directors and managers, raising of capital, holding company meetings, maintenance and audit

of company accounts, powers of inspection and investigation of company affairs,

reconstruction and amalgamation of the company and winding up of a company. The business

regulations differ from business to business depending upon the nature of the business. The

Companies Act applies to private and public limited companies. However, there are different

business regulations for different forms of businesses. For sole proprietor firm and a

partnership firm, the business regulations are entirely different.


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CHOICE OF SERVICES

Once the business plan is made, the next step forward is finalizing the products and services

that would be manufactured or provided. As it is a crucial step, it must be preceded by a

thorough research and analysis of the industry, the market, the competitors and so on. It is

absolutely indispensable to understand the industry and its functioning. It is also important to

gather the infrastructure and resource required for manufacturing or providing the product/

service.

INFRASTRUCTURAL SET UP

Any aspiring entrepreneur faces many crucial decisions to be made before a business can be set

up. Besides finalizing the products and services to be provided, decision regarding location of

the business is as important a decision. It is a good idea, therefore, to determine the basic

infrastructure facilities required for smooth operations of your business.

In order to start, the entrepreneur must get a plan or layout of his factory approved from the

concerned authorities. It is something which is mandatory all business entities irrespective of

their size, scale and worth.

SELECTION OF AN APPROPRIATE FORM OF ORGANIZATION

Once an entrepreneur decides to set up a business, he faces the option to choose between

various forms of organization starting from Sole Proprietorship to Partnership firm, Joint

Hindu Family Business, Co-operative societies,Private Limited Company and Public Limited

Company. Each form of business organization has its own set of advantages, disadvantages and

features that must be explored and understood before taking a decision. Selection of the right

form of business organization is imperative for longevity of the business. While the right

choice of form facilitates efficiency in business functions, a mess up in this regard may lead to

gross mismanagement issues. The form of organization for any business determines its focal

point of responsibility, power and control and the extent of role

enjoyed by the entrepreneur in the organization. It determines the extent of

risk the entrepreneur faces and the method of division of profit or loss to be followed.


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COMPANY AS A FORM OF ORGANISATION

A company is an association of both natural & artificial persons incorporated under the existing

law of a country. Company is a voluntary association of persons formed for the purpose of

doing business having a distinct name and limited liability. It is a juristic person having a

separate legal entity distinct from the members who constitute it, capable of rights and

duties of its own and endowed with the potential of perpetual succession. In terms

of the Companies Act a company means a company formed & registered under the companies

Act 1956 or under any of the previous laws relating to the companies" [Section 3(1) (ii)]. In

common law, a company is a legal person or legal entity having separate form, & capable of

surviving beyond the lives of its members. However, company is not a citizen so as to claim

fundamental rights granted to citizens.

CHARACTERISTICS OF A COMPANY:

A company registered under the Companies Act has the following features: -

(1) separate legal entity;

(2) incorporated body;

(3) artificial legal person;

(4) perpetual succession;

(5) limited liability;

(6) transferability of shares

(7) common seal;

(8) right to own property;

(9) right to sue;

(10) right to enter into contracts;

(11) flexibility of investment;

(12) separation of control from the ownership.


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Company is a Juristic person' and it can file a suit as an 'indigent person'

An expression 'person' includes not merely a natural person but also other juridical

persons. A company being a juristic person would be represented before a Court of law or any

other place by a person competent to represent it. It is enough that the person competent to

represent a company presents the application on behalf of the company. Minors, lunatics or

person under any disability are also entitled to file a suit either through guardian or the next

fiend. In such a case it is the guardian or next fiend who is competent to represent the

petitioner. A public limited company, which is otherwise entitled to maintain a suit as a legal

person, can maintain an application under the Civil Procedure Code.

Company can be a complainant in a criminal case through its representative

The complainant must be a corporeal person capable of making his physical presence in the

Court. Its corollary is that even if a complaint is made in the name of an incorporeal person

like a company or corporation it is necessary that a natural person represents juristic person in

the Court and it is that naturalperson who is looked upon, for all practical purposes, to be the

complainant in the case. Decree passed against a company cannot be satisfied by attachment

and sale of properties belonging to other limited companies managed by same group of

directors.

Company is a separate legal entity

Limited company is a separate legal entity distinct from its shareholders. Merely because there

is only one shareholder, the entities which are otherwise distinct, one is a natural person

and the other is an artificial juristic person, it cannot be contended that the said entities

merge and one can act for and on behalf of other.

A shareholder has no right to intervene or object in suit pending against company in respect of

some of its assets independently of company.

Transfer of property by promoter

When a promoter transfers its property to Company on incorporation, which ensures for its

benefit, no conveyance is necessary.

Company is liable for a criminal offence


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A company can be held liable for criminal intention. A company can be held liable for an

offence of conspiracy to defraud. If act was criminal act of an officer, to make company liable

it must be proved as a matter of fact that officer was acting within limits of his authority on

behalf of company.

Company can be a trustee

A company can act as a trustee if permitted by its objects clause.

Company cannot be a receiver

Body corporate is not qualified for appointment as receiver of property of a company

formed and registered under Companies Act.

Major constituents of a company

The major constituents of a company are its members, who are the ultimate owners, and its

directors. It is an important feature of the company form of business, that there is a gap

between the ownership and control over the affairs of the company. In real sense the members

are the owners of a company, but it is being managed by the directors who are elected

representatives of its members, because it is absolutely necessary for it to have a human

agency called as the company's Board of directors. The Board of directors comprises the

directors.

Lifting of the Corporate Veil

The basic principle, that the company is a distinct legal entity from its members, is

regarded as a curtain or a veil between the company and its members. This corporate veil

protects the members from the liability of the company. When we look at the economic reality

of the situation, the 'corporate veil' is said to have been lifted in certain circumstances.

As a matter of rule, the corporate veil cannot be lifted to see the identity of the persons behind it

except in a few exceptional circumstances/situations, which have developed over a period of

time through judicial pronouncements. These are:

to determine whether, it is an enemy company;

if it is used for evasion or to circumvent tax obligation;

when it is formed to defeat/circumvent law/defraud creditors/ to avoid legal obligations;


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where the companies are in relationship of holding and subsidiary companies;

the laws relating to foreign exchange control have been violated;

a shareholder has lost the privilege of limited liability;

where the sole responsible person is the dependent himself;

by implying in certain cases that the company is an agent or the trustee of its members;

where a particular director could be proceeded against in pursuance of the impugned

show cause notice or where he is liable for the payment of all duties charged and to all

penalties;

where the corporate entity is used for a fraudulent purpose;

where corporate shield was blatantly used to disobey orders of the Court wilfully.

It was held in the case of Krishi Foundry Employees' Union v Krishi Engineers Ltd 2003

CLC 546 (AP) that lifting of corporate veil is permissible if public interest requires. If the

company uses another concern(s) to facilitate evasion of its legal obligation like payment oftaxes, direct or indirect, or denial of statutory benefits to workmen, the Court has to disregard

its separate legal entity. The question in each case is of the company law and the corporate

personality is of secondary importance. The important question is whether the method adopted

for evasion of legal obligations was intended to challenge public interest.

The corporate veil may be lifted where a statute itself contemplates lifting the veil, or

fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent

statute is sought to be evaded or where associated companies arc inextricably connected as to

be, in reality, part of one concern. [Life Insurance Corpn. of India v Escorts Ltd. (1986) 59

Comp Cas 548 (SC)].

Where it is found that corporate character has been used for committing illegalities and for

defraudingpeople, corporate veil can be lifted with a view to rendering full justice to

affected parties. [Delhi Development Authority v Skipper Construction Co. (P) Ltd. (1996) 4

Comp. LI 233 (SC)].


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The corporate veil is lifted when in defence proceedings, such as for the evasion of tax, an

entity relies on its corporate personality as a shield to cover its wrong doings. [BSN (UK)

Ltd. v Janardan Mohandas Rajan Pillai (1996) 86 Comp Cas 371 (Bom)].

Where a transaction of sale of its immovable property by a company in favour of the wives

of the directors is alleged to be sham and collusive, the court will be justified in piercing the

veil of incorporation to ascertain the true nature of the transaction as to who were the real

parties to the sale and whether it was genuine and bona fide or whether it was between the

husbands and the wives behind the facade of the separate entity of the company. [Subra

Mukherjee v Bharat Coking Coal Ltd. (2000) 101 Comp Cas 257 (SC)].

BACKGROUND :Classification of companies

Companies under the Companies Act, 1956 may be classified on various grounds as under:

I. On the basis of business activities undertaken:

(1) Manufacturing Activities

(2) Service Activities

(3) Non-Banking Finance Activities

(4)Non-profit making (Section-25)

(5) Producer (Section 581A)

II. On the basis of liabilities of the members and directors:

(1) With Limited liability

(a) Limited by shares

(b) Limited by Guarantee & having share capital

(c) Limited by Guarantee

(2) With unlimited liability


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III. On the basis of membership pattern/size:

(1) Public

(a) Unlisted

(b) Listed

(2) Private

(a) Independent

(b) Subsidiary of Public Co.

(3) Government

IV. On the basis of place of registration:

(1) Indian Company (incorporated in India)

(2) Foreign Company (Company incorporated outside India but having place of business

in India)

V. On the basis of control over the management:

(1) Holding Company

(2) Subsidiary Company

Types of Companies

MANUFACTURING COMPANIES

Companies mainly engaged in any type of manufacturing activities, although they may

have other businesses, are primarily classified as manufacturing companies. These

companies are required to comply with the provisions of Companies Act, 1956 alongwith

the Companies (Auditor's Report) Order, 2003 (CARO) which has come into force

w.e.f 1st July 2003 and in the matter of deposits under section 58A of the Act and the


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Companies (Acceptance of Deposits) Rules, 1975.

SERVICE COMPANIES

Companies mainly engaged in any type of service activities like consultancy,management, information technology, etc., although they may have other businesses, are

termed as service companies. These companies have to comply with the provisions of

Companies Act, 1956 alongwith the rules prescribed in the Companies (Auditor's Report)

Order, 2003 (CARO) which has come into force w.e.f. 1stJuly, 2003 as may be applicable and

in the matter of deposits under section 58A of the Companies Act, 1956 and the Companies

(Acceptance of Deposits) Rules, 1975.

NON-BANKING FINANCIAL COMPANIES (NBFC)

Companies, which are not banking companies but are engaged in the business activities,

related to loan, finance, investment, leasing, hire purchase and other fund-based activities,

are termed as Non- Banking Financial Companies. The basic criteria of a company to be

considered as a NBFC are:

1. deployment of funds; and

2. recognition of income.

If majority of funds are deployed in and/or major income accrues from NBFC activities,

although it may have other businesses, like manufacturing or service activities, etc., such

company shall be deemed and classified as NBFC and these companies are required to

comply with the provisions of RBI Act, and the rules and directions thereof, in addition to the

provisions of Companies Act, 1956.

There are certain criteria for NBFC Companies viz. Compulsory registration with the

RBI for commencement/continuance of NBFC activities, minimum Net Owned Fund,

requirement of compulsory rating and RBI compliance before acceptance of deposits, etc.

If the company is having business activities of housing finance, it has to comply with the

provisions ofNational Housing Bank Act, 1987 and directions issued by the National

Housing Bank and must be registered with NHB.

NON-PROFIT MAKING/CHARITABLE COMPANIES


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Any association desirous of being incorporated as a company with limited liability,

without the addition of word "Limited" or the words "Private Limited" as the case may be

shall make an application electronically to the Central Government (powers delegated

to the Regional Director) on behalf of such company/proposed company as the case may be,

for grant of licence under section 25.

It is usual to form such companies whose objects may be to protect and promote the interests of

traders and business groups or to promote at, science, religion, charity or such other general

purpose, which is in the overall interest of the community. Section 25 of the Companies Act,

1956 deals with the powers of the Central Government to dispense with 'Limited' in the name of

charitable or other companies on fulfilments of certain conditions and is entrusted with the

power to grant licence to association that for the companies proposed to be formed without the

word "Limited" or "Private Limited" in their names or to companies already formed to delete

the said words from their names where the Central Government is satisfied that:

(a) the object for which the company is proposed to be formed or already formed is to

promote commerce, at, science, religion, charity or any other useful objects;

(b) profits, if any, earned in carrying out the object and other income are proposed to be applied

only for promoting its objects; and

(c) the company intends to prohibit the payment of dividend to its members.

LIMITED COMPANIES

In such types of companies, the liabilities of members are always limited subject to some

exceptions.

COMPANIES LIMITED BY SHARES

These types of companies are quite common in commercial, trading and industrial world.

Such companies are characterised with an authorised share capital of a certain amount,

which is divided into units of definite sum called shares. The authorised share capital may

comprise of more than one kind of shares, viz. ordinary or equity shares (voting and non-

voting) and preference shares. The liability of each member of such company is limited to the

unpaid amount of shares and premium, if any, held by him.

COMPANIES LIMITED BY GUARANTEE AND HAVING SHARE CAPITAL


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Such a company by way of undertaking in its Memorandum of Association restricts the liabilities

of its members to a certain fixed amount, for payment of the debts and liabilities of the

company in the event of winding up. The members are liable only for the amount contracted

before he ceased to be a member or payment of the debts and liabilities within one year after he

ceased to be a member. Such companies may also have share capital whenever necessary. In that

event, the members will be liable for the amount, if any, remaining unpaid on the shares

subscribed by them, in addition to the above guaranteed amount.

COMPANIES LIMITED BY GUARANTEE WITHOUT HAVING SHARE CAPITAL

Companies limited by guarantee without having share capital are exactly similar in

nature to the guarantee companies as referred above except that there will be no share

capital. The members will be liable, in the circumstance referred to above, to contribute

an amount not exceeding the sum specified in the Memorandum of Association.

UNLIMITED COMPANIES

Such types of companies are analogous to that of partnership firm in respect of the

liability of a member. Every member in such a company is jointly and severally liable for all

the debts and liabilities of the company.

PUBLIC LIMITED COMPANIES

The Company defined under section 3(1)(iv) of the Companies Act, 1956 is a public company

which is not a private company;

(i) has a minimum paid-up capital of Rs. 5 lakhs or such higher capital as may be prescribed;

(ii) is a private company but subsidiary of a public company.

UNLISTED COMPANIES

These types of companies do not invite general public to subscribe for its shares and

securities and generally the directors, friends, their relatives and associates hold all the

shares and securities in such companies. Unlisted companies are not required to comply with

any requirements of the stock exchange and SEBI, until and unless it proposes to offer its

securities to the general public by way of public issue or otherwise.


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LISTED COMPANIES

These types of companies are having listing of its securities with one or more recognised

stock exchanges in the country, these companies are required to comply with the

requirements of the Listing Agreement, Depository Rules and SEBI guidelines as may be

amended from time to time.

PRIVATE LIMITED COMPANIES

Section 3(1)(iii) defines a private company as one which

(a) has a minimum paid-up share capital of Rs.1 Lakh or such higher capital as may be

prescribed;

and

(b) by its Articles of Association:

(i) restricts the right to transfer its shares;

(ii) limits the number of its members to 50 which will not include:

A. members who are employees of the company; and

B. members who are ex-employees of the company and were members while in such

employment and who have continued to be members after ceasing to be employees;

(iii) prohibits any invitation to the public to subscribe for any shares or debentures of

the company; and

(iv) prohibits any i nvitation or acceptance of deposits from persons other than its

members, directors or their relatives.

This goes to say that a private company, in addition to the earlier conditions, shall have a

minimum paid-up share capital of Rupees One Lakh or such higher capital as may be prescribed

and its Articles shallprohibit invitation or acceptance of deposits from persons other than

its members, directors or their relatives. In case of such companies, public interest is not


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involved.

The basic characteristics of a private company in terms of section 3(1)(iii) of the Act do not get

altered just because it is a subsidiary of a public company in view of the fiction in terms of

section 3(l)(iv)(c) of the Act that it is a public company. May be it is a public company in

relation to other provisions of the Act but not with reference to its basic characteristics.

In terms of that section, a company is a private company when its articles restrict the right of

transfer of shares, restrict its membership to 50 (other than employees shareholders) and

prohibits invitation to public to subscribe to it shares. Therefore, all the provisions in the articles

to maintain the basic characteristics of a private company in terms of section 3(1)(iii) will

continue to govern the affairs of the company even though it is a subsidiary of a public

company. One of the basic characteristics of a private company in terms of that section is

restriction on the right to transfer and the same will apply even if a private company is a

subsidiary of a public company. [Hillcrest Realty SDN.BHD v Hotel Queen Road (P) Ltd. (2006)

72 CLA 245 (CLB)].

HOLDING AND SUBSIDIARY COMPANIES

A Company shall be deemed to be subsidiary of another if the other company controls the

composition of the Board of directors of the former; or the other company exercises or controls

more than half of the total voting power of the former where that former company was

incorporated prior to the commencement of the Companies Act, 1956 in which the holders

of the preference shares issued prior to such commencement have the same voting rights

as equity shares; or the other holds more than half in nominal value of the equity shares of the

former; or the former company is a subsidiary of any other company which is the subsidiary of

the other. [Section 4(1)] (See drat resolution in Appendix 1)

Composition of directors in the subsidiary company

The composition of a Board of directors of the company shall be controlled by the another

company if the latter by the exercise of some power exercisable by it at its discretion

without the consent or concurrence of any other person can appoint or remove the all or

majority of the directors of the former company, if any of the following conditions is satisfied:

(i) that a person cannot be appointed as a director of a former company without the exercise in

his favour of the power by the latter company;


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(ii) that a person's appointment as a director in the former company follows necessarily

from his appointment as director or manager of, or to any other office or employment, in

the latter company;

(iii) that the directorship is held by an individual nominated by the latter company or its

subsidiary.

An agreement to provide authority to the lenders to appoint directors in the company may

be deemed to be control over the composition of the Board of directors

It is possible to obtain control in regard to composition of the Board by agreement by which

one company may agree to advance funds to another company and in return be given control to

appoint all ormajority of the Board of directors in the borrowing company. This right would

be sufficient to constitute the lending company as holding company and the borrowing company

as subsidiary.

Ascertainment whether the company is a subsidiary of another company.

To ascertain whether one company is a subsidiary of another, following points may also be noted:

(i) Any shares held in a company in a judiciary capacity on behalf of some other person

will not come under the shareholding held by the other.

(ii) Any shares held by a nominee for the other company will be included in the other

company's shareholding. Further, shares held by a subsidiary or by a nominee for the

subsidiary shall be treated as held or exercisable by that other company.

(iii) Where the ordinary business of the other or its subsidiaries includes lending of money and

shares are held or power exercisable by way of security only, such shares shall not be taken

to be the shareholding of the other.

Where a body corporate is incorporated in a country outside the country, a subsidiary or

holding company of the body corporate under the law of that country shall be deemed to be a

subsidiary or holding company of the body corporate within the meaning of this Act, whether

the requirements of section 4 are fulfilled or not. [Section 4(6)]

PRODUCER COMPANIES


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By the Companies (Amendment) Act, 2002, a new Part IXA has been inserted under the Act

with the main objective to provide provisions for formation of co-operative society as a

company and to convert existing co-operative societies into companies as the provisions

available under Pat IX were available for conversion of a partnership firm into a company.

The conversion of co-operatives into producer companies is purely voluntary. The conversion

option by co-operative society can be exercised only if two-thirds of the members of the

concerned society vote in favour of the resolution to that effect. The producer company

indicate that only certain categories of persons can participate in the ownership of such

companies, the members of the producer company have necessarily to be "primary

producers", that is persons engaged in an activity connected with, or relatable to, primary

produce.

The Companies (Amendment) Act, 2002 provides a statutory and regulatory framework that

creates the potential for producer-owned enterprises to compete with other enterprises on a

competitive footing by way of various forms of companies. This will provide an

opportunity to cooperative institutions to voluntarily transform themselves into new form of

producer companies.

GOVERNMENT COMPANIES

Section 617 of the Companies Act, 1956 denies Government Company on the basis of

amount invested in the capital of the company. Such types of companies may be private

limited, public limited whether listed or not.

If not less than fifty-one per cent of the paid-up share capital of the company is held by the

Central Government or by a State Government or State Governments or partly by the

Central or partly by one or more State Governments, then the company shall be treated as

Government Company and includes any subsidiary of a Government Company. Government

Companies is exempted from certain provisions of the Companies Act, 1956.

METHODOLOGY:

COMPANY FORMATION

The Companies Act of 1956 sets down rules for the establishment of both public and private


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companies. The most commonly used corporate form is the limited company, unlimited

companies being relatively uncommon. Any seven or more persons, or where the company to

be formed will be a private company, any two or more persons, associated for any lawful

purpose may by subscribing their names to a memorandum of association & otherwise

complying with the requirements of the Companies Act 1956 (the Act) in respect of

registration, form an incorporated company, with or without limited liability (Section 12 of the

Act)

A company is formed by registering the Memorandum and Articles of Association with the

State Registrar of Companies of the state in which the main office is to be located.

Foreign companies engaged in manufacturing and trading activities abroad are permitted by the

Reserve Bank of India to open branch offices in India for the purpose of carrying on the

following activities in India:

To represent the parent company or other foreign companies in various matters in India,

for example, acting as buying/selling agents in India, etc.

To conduct research work in which the parent company is engaged provided the results

of the research work are made available to Indian companies

To undertake export and import trading activities

To promote possible technical and financial collaboration between Indian companies

and overseas companies.

Application for permission to open a branch, a project office or liaison office is made via the

Reserve Bank of India by submitting form FNC-5 to the Controller, Foreign Investment and

Technology Transfer Section of the Reserve Bank of India. For opening a project or site office,

application may be made on Form FNC-10 to the regional offices of the Reserve Bank of India.

A foreign investor need not have a local partner, whether or not the foreigner wants to hold full

equity of the company. The portion of the equity thus not held by the foreign investor can be

offered to the public.

FOR INCORPORATION OF COMPANIES SECTION 12 STIPULATES EXISTENCE

OF THE FOLLOWING INGREDIENTS FOR THE INCORPORATION OF THE

COMPANY:


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1) Promoters of the company: At least 7 in case of a public limited company & at least 2 in

case of a private company

2) Lawful purpose for which they should associate themselves

3) Promoters must subscribe their names to the memorandum of association of the company.

4) Promoters must comply with the requirements of the Companies Act, 1956, in respect of

registration of the company.

5) Minimum paid up capital should be Rs.1 lakh in case of a private company & Rs.5 lakhs in

case of a public company or such a higher paid up capital as prescribed.

PROMOTERS TO TAKE STEPS FOR FORMATION OF COMPANY:

Promoters are the persons, who conceive the idea or visualize a project and then steps to

execute the idea into reality. They broach their idea to friends, or business associates make

arrangements for collecting equity & loan for the company, prepare a team of persons who

would act as its directors & take all other steps for compliance with the requirements of the

Companies Act in respect of registration of the company.

The Companies Act does not define the expression "promoter It is referred to in Section (6) of

Section 62 of the Act. However, it is restricted to & is meant only for the purposes of a

prospectus. It states that the expression promoter means a person who was a party to the

preparation of the prospectus, but does not include any person by reason acting in a

professional capacity for persons engaged in procuring the formation of company.

PROCEDURE FOR INCORPORATION OF PUBLIC LIMITED COMPANY H AVING

SHARE CAPITAL:

The following procedural steps are required to be taken by promoters for the incorporation of a

public limited company:

Selection of the type of Company


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The promoters of a Company may be individual entrepreneurs or bodies corporate engaged in

efforts to incorporate a company. They have the power of defining the object of the Company

and deciding various matters for the company proposed to be incorporated. It is depending

upon the purposes for which the Company is to be incorporated, proposed scale of operations,

capital involved etc. the promoters can select type of the Company as they wish to form

themselves into viz. private, public Company, non-profit making company etc.

Requirement for having DIN

The concept of a Director Identification Number (DIN) has been introduced for the first time

with the insertion of Sections 266A to 266G of Companies (Amendment) Act, 2006. As such,

all the existing and every individual, intended to be appointed as director of a Company shall

make an application for allotment of Director Identification Number (DIN) to the Central

Government in the prescribed DIN Form. Therefore before submission of e-form 1A all the

directors of the proposed Company must ensure that they are having DIN and if not, it should

first be obtained, however on the basis of the provisional DIN allotted online will serve the

purpose.

Requirement for having Digital Signatures

After 16th September, 2006, every documents prescribed under the Companies Act, 1956, every

documents 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 it is compulsory required to obtain Digital Signatures of atleast one director to sign e-

form 1A and other documents. It may be noted that if the director or other persons covered are

already having digital signatures, their signatures maybe used for the abovesaid purposes and

there is no need to take new digital signature again.

(i) SELECTING THE NAME OF T HE COMPANY & ASCERTAINING ITS

AVAILABILITY FROM ROC:

Promoters are required to select at least 6 names for the proposed company & secure the name

availability by making an application to the Registrar of the Companies of the State in which

they want to have the proposed company incorporated .The application is required to be made

in e-form 1A as prescribed in the Companies (Central Governments) General rules & Forms

(Amendment) Act, 2006, for the purpose, along with the prescribed application fee of Rs. 500/-


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It must also be ensured that the proposed names do not violate the provisions of emblems &

names (Prevention of Improper use) Act, 1950.

The names of the proposed company are to be given in e-form 1A in order of the promoters

preference so that if the first name is not available, the registrar may consider the second name

& if the second name is also not available, the Registrar may consider the third name & then

the fourth name, so that time in referring back forth may be saved. The proposed names should

not be identical with or too closely resemble the names by which a company in existence has

been previously registered and the names should be selected after taking notes of numerous

provisions, clarifications, circulars and rules made by the Ministry of Corporate Affairs. In case

key word is required, significance of each key word should be given in e-form 1A.

Companies (Name Availability) Rules, 2011

In exercise of the power conferred by clause (a) of sub-section (1) of section 642 read with

sections 20 and 21 of the Companies Act, 1956 (1 of 1956), the Central Government has made

the Companies (Name Availability) Rules, 2011 which has not been notified and shall come

into force on such date as the Central Government may, by notification in the Official Gazette,

appoint.

The e-form 1A requires the applicant, duly authorized by promoters, to sign the same using

digital signature after obtaining a "Digital Signature Certificate" (DSC) issued by the Certifying

Authority in terms of the Information technology Act, 2000. The e-form is to be filed

electronically with the Registrar as per the Companies (electronic filing & Authentication of

Documents) Rules, 2006. For incorporation of a new company only Part A of the form is

required to be filled, whereas Part B along with fields 7 & 8 of part A are required to be filled

in case of change of name of the company. Earlier, the fee of Rs.500 payable for the purpose

can be remitted either electronically (by using a credit card or by electronic bank transfer) or by

cash/draft through challan generated electronically on submission of the e-form.

In the interest of stakeholders, with a view to improving service delivery time, Ministry has

decided to accept payments of value upto Rs.50,000, for MCA 21 services, only in electronic

mode w.e.f 27th March, 2011.


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For the payments of value above Rs. 50,000, stakeholders would have the option to either make

the payment in electronic mode, or paper challan. However such payments would also be made

in electronic mode w.e.f .1st October2011.

(ii) REVALIDATION OF NAME AVAILABILITY:

According to Rule 4A of the Companies (Central Governments) General Rules & Forms

(Third Amendment) rules 2007, the promoters of a company under a proposed name or a

company seeking to change its name may make an application in Form 1A, accompanied by a

fee of Rs. 500/- to the Registrar of Companies of the State in which the registered office of the

proposed company or of the company to be or is situated.

The registrar shall cause to examine the application as to whether the changed name or the

proposed name, as the case may be, is undesirable within the meaning of section 20. In case the

name is undesirable, he may reject the same or ask for resubmission of the application with

new names or calls for further information, ordinarily within 3 days of receipt of the

application.

The applicants shall be given only up to 2 opportunities for resubmission of

their proposal against the fee paid in the first instance for name availability after the

original application is filed.

However, the applicant will be at liberty to fresh application along with the prescribed fee.

Where the Registrar of the companies informs that the changed name or the proposed name, as

the case may be is not undesirable, such name shall be available for adoption for a period of

sixty days from the date the name is allowed.

The applicant may apply for an extension for retention of such name for a further period of

thirty days on payment of fifty percent of the fee prescribed for the application at the initial

stage, no further extension will be granted after expiry of ninety days from the date the name is

allowed in the first instance. The name allowed shall lapse after expiry of sixty or ninety days,

as the case may be, from the date it is allowed first.


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In order to have the name revalidated for a further period of 30 days, the company or the

promoters as the case may be, have to follow the following procedure :-

a) Make a fresh application to the same Registrar of Companies who had intimated the

company or the promoters, as the case may be, that the selected name is not undesirable, in e-

form 1A , electronically signed by the applicant by using his DSC, explaining therein the

reasons for not having availed of the name within the validity period.

b) The applicant must give the service request number (SRN) of the earlier confirmation of

availability of the proposed name.

c) Pay the application fee of Rs.250/- for retention of the name for next 30 days electronically

or through Cash/Draft as described earlier.

d) The application should be made before the last date of the validity period.

e) On receipt of approval from the Registrar of the Companies, the name may be availed during

the extended period of 30 days. The Registrar shall not grant second revalidation. Therefore,

before applying for revalidation, the company or the promoters, as the case may be, must

ensure that they are serious in availing the name.

( iii) DRAFTING & PRINTING OF MEMORANDUM OF ARTICLES:

After ascertaining name availability from the Registrar of Companies steps should be taken to

get the Memorandum & Articles of Association for the proposed company drafted & printed.

It should be noted that the main objects should match with the objects shown in e-form 1A.

These two documents are basically the charter and internal rules and regulations of the

Company. Therefore, it must be drafted with utmost care and with the advice of the experts and

the other object clause should be drafted in a very broader sense. A public company limited by

shares need not necessarily prepare & get its articles of association registered along with its

memorandum of association. In such a case, Table A of Schedule I to the Companies Act,

1956, shall apply. However, as a matter of practice, every company gets the articles prepared to

suit its individual requirements, and registered along with the memorandum of association.

Before getting the memorandum & articles printed, it is advisable to have their drafts vetted by


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the concerned Registrar of Companies to avoid unnecessary expenditure of time & money in

getting them printed & reprinted after incorporating modifications etc that may be suggested by

the Register. This would be specially desirable where promoters have no prior experience of

company formation. After the vetting by Registrar, the memorandum & articles may be printed

as required by Section 15 of the Act.

If the promoters plan to get the securities of the proposed company listed with one or more

designated stock exchanges, it is advisable to send the draft of the memorandum & articles of

association to those stock exchanges for their scrutiny & suggestion to the effect whether they

would like to have certain articles incorporated therein in compliance with provisions of Listing

Agreements of the Stock Exchanges.

(iv ) STAMPING & SIGNING OF MEMORANDUM & ARTICLES:

The Memorandum & Articles should be got printed & stamped by the appropriate State

Authority (Collector of Stamps) under the Indian Stamp Act. Thereafter the Memorandum &

the Articles should be signed by at least 7 subscribers.

Each subscriber to the memorandum shall write in his /her own hand, his /her father /husband's

name, occupation address & the number of shares subscribed for by him/her.

The signature of all the subscribers shall also be witnessed. The witness shall also sign & write

in his own hand, his name, his fathers name, occupation & address.

The fees payable to the Registrar at the time of registration of a new Company varies according

to the authorised capital of a Company proposed to be registered as per Schedule X to the Act.

Fees can be calculated by the MCA Portal.

( v) DATING OF MEMORANDUM & ARTICLES:

The memorandum & articles are then dated, but the date must be a date of stamping or later

than the date of their stamping & not in any event, a date prior to the date of their stamping.

(vi ) FILING OF DOCUMENTS & FORMS FOR REGISTRATION:


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E-form 1 is required to be filed as an application & declaration for incorporation of a company

having Memorandum, Articles of Association, and details of subscribers as attachments.

The following forms & documents ,which are prescribed under the Companies Act, 1956 & the

Companies (Central Governments) General Rules & Forms (Amendment) Rules, 2006 are

required to be prepared, signed & filed with the concerned Registrar of Companies for the

purpose of getting the company incorporated :-

Forms :

i) A statutory declaration in e-form 1 as prescribed in the Companies (Central government's)

General Rules & Forms (Amendment) rules, 2006 executed by an advocate of the Supreme

Court or of a High Court, an attorney or a pleader entitled to appear before the High Court, or a

secretary or a chartered accountant in whole time practice in India ,who is engaged in the

formation of the company ,or by a person named in the articles as a director, manager ,or

secretary of the company ,that all the requirements of the Act and the rules there under have

been complied with in respect of the company & matters precedent & incidental thereto, which

may be accepted by the Registrar as sufficient evidence of each compliance. It should also be

noted that details of all Companies in which directors are also directors should be given and the

names, addresses and other particulars of directors and promoters should be matched with theinformation provided in the DIN application form. [Section 33(2)].

The original duly filled in & signed e-form 1 on stamp paper is required to be sent to be

concerned ROC office simultaneously, failing which the filing will not be considered & legal

action will be taken.

ii)E-form 18 containing notice of situation or of the change in situation of registered office of

the company.

iii)E-form 32 containing prescribed particulars of directors including managing /whole time

director /manager/secretary ,if any and the changes among them or consent of candidate to act

as a managing director or director or manager or secretary of a company and/undertaking to

take and pay for qualification shares. E-form 32 is also required to be pre certified by company

secretary & chartered accountant or cost accountant (in whole time practice)

It is important to note that every person who is to be appointed as director must have directors

identification Number (DIN) .If the proposed director does not have DIN he/she must obtain


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the same before filing up the e-form 32. This can be obtained by making an application on the

MCA portal in form DIN-1.

Further scanned/digitized copy of the photograph and a written signed consent on a plain paper

of every person who is being appointed as a director are also required to be attached with the e-

form 32.

Following additional details are also required to be given in e-Form 32:

a) Name and CIN of all the companies in which they are directors

b) Names of partnership concerns in which they are partners

c) Names of proprietor concerns of them.

Documents :

i) A copy of the printed memorandum & articles of association duly stamped, signed & dated.

It may be noted that in case of a public limited company registration of articles of association

with the Registrar is optional, but in case of a private limited company, registration of articles

of Association with the Registrar is compulsory.

ii) Any agreement that the company on incorporation proposes to enter into with any person for

appointment as its managing director or whole time director or manager, as an attachment.

(Optional)

iii) General power of attorney on a non judicial stamp paper of the appropriate value as

applicable in the state signed by all the subscribers, in favors of one of them or any other

person, for making alterations etc on their behalf, in the memorandum and articles of

association & other documents /forms filed with the Registrar of Companies, if suggested by

the Registrar.

iv) Other agreement, if any, which has been stated in the Memorandum or Articles of

Association shall also be filed in the PDF file with the Registrar because in such cases the

agreement will form part of this basic document.

(vii ) PRE-CERTIFICATION:


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Form 18 & 32 are required to be pre certified by a company secretary or chartered accountant

or cost accountant in whole time practice.

(viii ) REGISTRATION & FILING FEE:

Promoters must make sure to remit to the registrar along with the above forms /documents, the

prescribed registration fee & fee for filing of forms as per the rates contained in Schedule X to

the Companies Act, 1956.

(ix ) MINIMUM PAID-UP CAPITAL:

Ensure that the minimum paid up capital is 5 lakh rupees or such higher paid up capital as may

be prescribed.

( x) SCRUTINY OF DOCUMENTS AND FORMS BY REGISTRAR:

On receipt of the aforementioned documents, office of the Registrar of Companies will

scrutinize them and if they are found complete in all respects, the Registrar will register the

company & generate a CIN No. If the Registrar finds any defect or deficiency in any of the

documents or forms, the attorney will be called by a communication to visit his office to

remove the defect or make up the deficiency, where after the Registrar will register the

company.

(xi ) ISSUE OF CERTIFICATE OF INCORPORATION BY REGISTRAR:

After the registration of the company, the Registrar will issue under his hand and seal of his

office, the Certificate of Incorporation in the name of the company and send it through post.

One may also take printout of the Certificate of Incorporation generated online. The date given

by the Registrar in the Certificate of Incorporation will be the date of incorporation of the

incorporation of the company, on which date the company will be considered to have come into

existence as a legal entity separate from its subscribers.

(xii ) CERTIFICATE OF COMMENCEMENT OF BUSINESS:

File a declaration in eForm 20 and attach the statement in lieu of the prospectus (schedule III)

OR


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File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.

On registration, a public company cant commence business so long it does not obtain

Certificate of Commencement of Business in accordance with section 149(2A) of the

Companies Act, 1956..

PROCEDURE FOR INCORPORATION OF A PRIVATE LIMITE D COMPANY

HAVING SHARE CAPITAL:

The procedure for the incorporation of a private limited company is same as that of a

public limited company with the following exception:-

i) The company must have a minimum paid up capital of 1 lakh rupees or such higher paid up

capital as may be prescribed.

ii) There must be at least 2 subscribers in place of 7.

iii) Registration of Articles of Association is compulsory.

iv) The provisions of Section 3 (1) (iii) of the Companies Act ,1956 should be included while

drawing up the memorandum & articles of association of a private limited company.

v) A Private Limited Company may commence its business activities from the date ofincorporation and it is not required to obtain Certificate of Commencement of business.

PROCEDURE FOR INCORPORATION O F COMPANY LIMITED BY GUARANTEE:

A company having the liability of its members limited by the memorandum of association to

such amount as the members may respectively undertake by the memorandum to contribute to

the assets of the company in the event of its being wound up, is known as company limited by

guarantee.

The procedure for incorporation of a company limited by guarantee is the same as the one

required to be followed for getting a public or a private limited company incorporated.

However, the following distinctive features in the case of a company limited by guarantee must

be noted:-

i) A company limited by guarantee may or may not have a share capital.

ii) A company limited by guarantee may be a public company or a private company.


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iii) According to sub-section (2) of Section 13 of the Companies Act, 1956 ,the memorandum

of association of a company limited by guarantee must state that the liability of its members is

limited.

The memorandum of association of a company limited by guarantee must also state that every

member of the company undertakes to contribute to the assets of the company in the event of

its being wound up while he is a member or within one year after he ceases to be a member for

payment of the debts & liabilities of the company, or of such debts & liabilities of the company

as may have been contracted before he ceases to be a member , as the case may be ,and of the

costs ,charges & expenses of winding up ,& for the adjustment of the rights of the

contributories among themselves, not exceeding specified amount.

iv) Sub-Section (2) of Section 27 of the Act lays down that the articles of a company limited by

guarantee shall state the number of members with which the company is to be registered.

v) Section 37(1) of the Act prohibits a company limited by guarantee and not having a share

capital from inserting any provision in its memorandum or articles or in any resolution

purporting to give any person a right to participate in the divisible profits of the company

otherwise than as a member.

vi) Sub-Section(2) of Section 37 lays down that in the case of a company limited by guarantee,

every provision in its memorandum or articles or in any Resolution purporting to divide the

undertaking of the Company into shares or interest shall be treated as a provision for a share

capital , not withstanding that the nominal amount or number of the shares or interest is not

specified thereby.

In the memorandum of association of a guarantee company , however, a clause stating the

amount of guarantee shall have to be interested in addition to the other necessary condition.

Similarly, in the articles of association of such a company ,articles stating the number of

member with which the company is proposed to be registered must be included.

The following procedural steps are required to be taken for getting a company limited by

guarantee registered:-

i) Paid up Capital:

In case company to be formed is a private company it must have a paid up capital of one lakhrupees and in case the company to be formed is a public company it must have a paid up capital


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of five lakh rupees or such higher paid up capital as may be prescribed. However, if the

company does not propose to have a share capital than this requirement is not required to be

complied with.

ii) Selection of name of the company & ascertaining its availability from ROC:

Make an application to the concerned registrar of companies in e-form 1A as prescribed in the

Companies (Central Governments General Rules & Forms (Amendment) Rules, 2006, for the

purpose & also pay the prescribed application fee of Rs.500 along with the application.

Earlier, the fee of Rs.500 payable for the purpose can be remitted either electronically (by using

a credit card or by electronic bank transfer) or by cash/draft through challan generated

electronically on submission of the e-form.

In the interest of stakeholders, with a view to improving service delivery time, Ministry has

decided to accept payments of value upto Rs.50,000, for MCA 21 services, only in electronic

mode w.e.f 27th March, 2011.

For the payments of value above Rs. 50,000, stakeholders would have the option to either make

the payment in electronic mode, or paper challan. However such payments would also be madein electronic mode w.e.f .1st October2011.

Select at least 6 names. The names of the proposed company are to be given in e-form 1A in

order of the promoters preference so that if the first name is not available, the Registrar may

consider the second name and if the second name also not available ,the Registrar may consider

the third name & the fourth name ,so that time in referring back & forth may be saved . The

proposed names should not be identical with, or too closely resemble, the names by which a

company in existence has been previously registered.

Before selecting the names, the promoters may be well advised to refer to the guiding

instructions prescribed by Ministry of Corporate Affairs (earlier the department of Corporate

Affairs) for making a name available for registration. It must also be ensured that the proposed

names do not violate the provisions of Emblems & names (Prevention of Improper Use) Act,

1950.

iii) Drafting & Printing of Memorandum and Articles of Association:


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On receipt of name availability from the Registrar of Companies, get the memorandum and

articles of association of the proposed company drafted by competent professional.

If the company does not propose to have a share capital and it is to be incorporated as a public

company, Table C in Schedule I to the Act has to be taken into consideration while drafting the

memorandum & articles of association.

If the company proposes to have a share capital & it is to be incorporated as a public company,

Table D in schedule I to the Act has to be taken into consideration while drafting its

memorandum & article of association.

Before getting the memorandum and articles printed, it is advisable to have the drafts vetted by

the Registrar of Companies to save time, money & effort.

iv ) Stamping and signing of Memorandum & Articles:

Get the memorandum and articles stamped by the appropriate State authority (Collector of

Stamps) under the Indian Stamp Act.

After being stamped, get the memorandum and articles signed by at least 2 subscribers in case

of a private company and by at least seven subscribers in case of a public company. Each

subscriber shall write in his/her own hand ,his/her name ,his /her father/husbands name

,occupation ,address and the number of shares subscribed for by him/her , if the company has a

share capital. At least 1 person shall witness the signatures of all the subscribers. The witness

shall also sign and write in his/her own hand his /her name, his/her fathers name, occupation

and address.

Under the system of MCA21, payment of stamp duty through the portal of the Ministry of

Corporate Affairs (MCA) is yet to be established. This facility shall be available only after the

entire system of payment of Stamp Duty through the MCA portal is agreed to by all the State

Governments. Until such time, the MOA and AOA are required to be printed, stamped and

physically signed by all subscribers and submitted physically at ROC office. A scanned copy

of the duly stamped and executed MOA and the AOA is also required to be attached with e-

form 1 and submitted electronically.

v ) Dating of Memorandum and Articles:


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Thereafter the memorandum and articles will be dated. This date must be a date of stamping or

later than the date of stamping and not, in any event, a date prior to the date of the stamping.

vi ) Filing of Forms and Documents with Registrar:

Forms:

a) E-form 18 containing notice of situation or change in situation of registered office of the

company.

b) E-form 32 containing prescribed particulars of directors including managing /whole time

director /manager/secretary, if any and the changes among them or consent of candidate to act

as a managing director or director or manager or secretary of a company and /or undertaking to

take and pay for qualification shares. E-form 32 is also required to be pre-certified by company

secretary or chartered accountant or cost accountant ( in whole time practice)

c) A statutory declaration in e-form 1 as prescribed in the Companies(central governments)

General Rules and forms (Amendment) Rules 2006 executed by an advocate of the Supreme

Court or High Court or a secretary or a chartered accountant in whole time practice in India,

who is engaged in the formation of the company ,or by a person named in the articles as a

director ,manager ,or secretary of the company ,that all the requirements of the Act and the

Rules there under have been complied with in respect of registration of the company and

matters precedent and incidental thereto.

The original duly filled in and signed e-form 1 on stamp paper is required to be sent to the

concerned ROC office simultaneously, failing which the filing will not be considered and legal

action will be taken.

Documents:

Prepare, get signed & file the following documents with the Registrar of the Companies for

getting the proposed company registered by way of e-filing:

a) Stamped, signed and dated copy of the memorandum of association

b) Stamped, signed and dated copy of the articles of association.


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c) Any agreement that the company on incorporation proposes to enter into with any person,

for appointment as its managing director or whole time director or manager.

d) General power of attorney on a non judicial stamp paper of the appropriate value as

applicable in the State, signed by all the subscribers, in favors of one of them or any other

person, for making alterations etc on their behalf in the memorandum & articles of association

& other documents/forms filed with the Registrar of Companies ,if suggested by the Registrar.

e) Copy of e-form 1A and name approval letter obtained from the MCA. If name approval

letter is not received than, Service Request Number of e-form 1A filed with the Registrar of the

Companies.

In case of documents which are required to be filed on non judicial stamp paper/ stamped

documents, the company shall submit such documents accordingly in the physical form, in

addition to their submission in electronic form.

vii ) Registration and filing fee:

Along with the above detailed documents and Forms, pay the registration fee and filing fee for

documents and forms as per the rates prescribed in Schedule X to the Companies Act, 1956.

The fee is to be paid electronically as per the mode of payment discussed earlier.

viii ) Scrutiny of forms and documents by registrar:

On receipt of the aforementioned documents and forms, the office of the registrar of the

companies will scrutinize them and if they are found complete in all respects, the Registrar will

register the company and allot CIN No. If the registrar finds any defect in any of the documents

or forms, he will call the attorney by a communication to visit his office and remove the defects

or make up the deficiency. Thereafter the registrar will register the company.

A Certificate of Incorporation will be issued by the registrar of Companies under his hand and

seal of his office and sent through post to the company concerned.

One may take printout of the certificate of Incorporation which is generated online.

The date given by the Registrar in the Certificate of Incorporation will be the date of

incorporation of the company, on which date the company will be considered to have come into

existence as a legal entity independent of its members.


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PROCEDURE FOR INCORPORATION OF COMPANY FOR CHARITABLE AND

OTHER PUBLIC UTILITY PURPOSES WITHOUT ADDITION TO NAME THE

WORDS LIMITED OR PRIVATE LIMITED

The issue of license and Incorporation of companies to pursue charitable and other prescribed

objects with limited liability without the addition to its name of the word Limited or the

words Private Limited are regulated by Section 25 of the Companies Act, 1956 and

regulations, 1956 made by the Central government under Section 25 (1) and 609 (2) of the Act.

Pursuant to the provisions of Section 25(1) and the Regulations, an association, desirous of

being incorporated as a company with limited liability without the addition to its name of the

word limited or the words " Private Limited" shall take the following procedural steps for

securing a License under Section 25 of the Companies Act, 1956 and for getting it registered

under the Act:

1) To select at least 6 names in order of their preference, for obtaining availability of one of

those names for adoption for the proposed company.

2) To make an application to the Registrar of the Companies of the State in which the

registered office of the proposed company is to be situated for seeking name availability. The

application shall be in e-form No 1-A as prescribed in the Companies (Central governments)

General Rules and forms (Amendment) Rules, 2006 and shall be accompanied by a fee of

Rs.500 to be paid electronically.

3) Rule 4-A of the said rules advises the Registrar of Companies to furnish the required

information to the applicants, ordinarily within 3 days of the receipt of the application.

4) On receipt of the name availability from the registrar of the Companies to get the

memorandum and articles of association for the proposed company suitably drafted. The

memorandum shall be in the form specified in Annexure I to the Companies Regulations, 1956,

or in the form as near thereto as the circumstances admit.

Before getting these documents printed, it is advisable to have their drafts informally vetted by

the Regional director, Department of Company Affairs, at Mumbai, Kolkata, Noida or Chennai,

in whose region the registered office of the proposed company is to be situated.

5) To make an application to the regional director, for the grant of a license under Section 25 ofthe Companies Act, 1956 in e-form 24A. A


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Along with e-form 24A, in case of new association, for issue of license u/s 25, the following

documents are also required to be attached:

- Memorandum of Association (MOA)

- Articles of Association (AOA)

- Declaration as per Annexure V of Companies Regulations, 1956.

- Declaration by Advocate of Supreme Court or High Court, attorney or pleader entitled to

appear before a High Court, or a company secretary or chartered accountant in whole time

practice that the MOA & AOA have been drawn in conformity with provisions of the Act.

- Details of the promoters and of the proposed directors of the company.

- A list of the names, addresses, descriptions & occupations of its director and of its manager or

secretary ,if any together with the names of the companies , associations and other

institutions ,in which the directors of the applicant company are directors or hold responsible

positions ,if any with the descriptions of the positions so held.

- Statement of the grounds on which the application is made.

- If any of the above documents is not in English or Hindi, then a translation of such document

in English or Hindi.

Further it is to be noted that in case of application by a new association for issue of license

following attachments are required to be submitted at the concerned regional director office on

the stamp paper simultaneously of filing an application, failing which the filing will not be

considered and legal action will be taken.

a) Declaration as per Annexure v of Companies Regulations, 1956.

b) Declaration by advocate of Supreme Court or High Court, attorney or pleader entitled to

appear before a High Court, or a company secretary or chartered accountant in whole time

practice that the MOA & AOA have been drawn in conformity with the provisions of the Act.

6) According to Section 25 of the Act ,the applicants have to prove to the satisfaction of the

regional director that an association is already in existence or is about to be formed as a limited

company for promoting commerce, art ,science, religion charity or any other useful object andthat the association intends to apply its profits ,if any ,or other income ,for promoting its objects


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and its prohibits the distribution of any dividend to its members.

7) As required by regulation 4 of the said regulations, the application to the regional director

shall be accompanied by the following attachments namely:-

i) The memorandum and articles of association of the proposed company.

ii) a declaration on non judicial Stamp paper of the prescribed value (also required to be

submitted physically at the concerned regional director office simultaneously of filing an

attachment with application) by an advocate of Supreme Court or of a High court, an attorney

or a pleader authorized to appear before a High Court or a Secretary ,or a Chartered Accountant

,in whole time practice in India ,to the effect that the Memorandum and Articles of Association

have been drawn up in conformity with the provisions of the Act and that all the requirements

of the Act and the rules made there under have been duly complied with in respect of

registration or matters incidental or supplemental thereto.

iii) a list of the names ,descriptions addresses and occupations of the promoters (where a firm

is a promoter ,of each partner in the firm) as well as of the members of the proposed Board of

directors ,managers or secretary together with the names of companies ,associations and other

institutions ,in which such promoters ,partners and members of the proposed Board of Directors

are directors or hold responsible positions ,if any, with descriptions of the positions so held.

iv) an estimate of the future annual income & expenditure of the proposed company, specifying

the sources of the income and the objects of the expenditure.

v) a statement giving a brief description of the work , if any ,already done by the association

and of work proposed to be done by it after registration in pursuance of Section 25 0f the Act.

vi) A statement specifying briefly the grounds on which the application is made.

vii) a declaration on non-judicial Stamp paper of the prescribed value (also required to be

submitted physically at the concerned regional director office simultaneously of filing as

attachment with application) by each of the persons making the application, in the Form set out

in Annexure V to the Companies Regulation, 1956 or in a form as near thereto as the

circumstances admit; and

viii) A receipted treasury challan or any other electronic mode of payment as discussed earlier

evidencing that the necessary fees have been deposited.


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8) Regulation 9 of the said regulations lays down that if any of the above mentioned documents

is not in English or Hindi, a translation thereof either in English or Hindi, certified to be correct

by any director of the proposed company shall be furnished to the Regional Director together

with the documents.

9) Regulation 10 makes it mandatory that simultaneously with the application made to the

Regional Director, the applicants shall furnish to the Registrar of Companies of the State in

which the registered office of the proposed company or the company is to be or is situated, a

copy of the application, and each of the documents and translations annexed to the application.

10) Pursuant to regulation 11 of the said regulations ,the applicants shall ,within a week from

the date of making the application to the Regional Director ,publish at their own expense, a

notice of the application made to the Regional director and a certified copy of that notice as

published ,shall be sent forthwith to the regional director.

11) The aforesaid notice shall be in the form set out in Annexure II to the said Regulations or in

a form as near thereto as circumstances admit and shall be published at least once in a

newspaper in a principal language of the district in which the registered office of the proposed

company or the company is to be situated or is situated, and circulating in that district, and at

least once in an English newspaper circulating in that district.

12) The Regional Director shall, after considering the objections if any, received by it from the

Registrar of Companies or from any other person in response to the published notice, within the

time fixed therefore in the notice aforesaid and after consulting any authority, Department of

Ministry, as it may ,in its discretion ,decide ,determine whether the license should or should not

be granted.

13) The Regional director may direct the company to insert its memorandum, or in its articles,

or partly in the one and partly in the other, such conditions of the license as may be specified

by the Regional Director in this behalf.

14) The said Regulations permit a company , in respect of which a license has been issued

under Section 25 of the Companies Act , to amend its memorandum of association in

accordance with law so as to enable the company to pay in good faith ,with the previous

approval of the Central government ,reasonable and proper remuneration to any of its members

in return for any services ,actually rendered to it not as a member and thereupon the licenseissued to the said company shall stand modified accordingly.


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15) On receipt of the copy of the application, the Registrar of Companies gets the application

and the accompanying documents thoroughly scrutinized in his office to ensure that they are in

conformity with the relevant provisions of the Act & Regulations.

16) The Registrar of the Companies may list out modifications, that he considers necessary in

the draft Memorandum of Association and Articles of Association and forward the same to the

Regional director. He may also recommend to the Regional director about the grant of their

license or otherwise of the proposed company based on his knowledge of the promoters of the

proposed company.

17) The Registrar may also report to the Regional Director whether there is any other company

in existence with similar objects in or near the place where the registered office of the proposed

company will be situated and whether the issue of a license to the proposed company is really

necessary.

18) The Regional Director may, make a reference to the District Magistrate or the State

Government and the public at large, and invite their objections, if any , to the issue of a license

to the proposed company.

19) Having received the views of the Registrar, the State Government and also objections from

the public, if any, the Regional Director takes a decision whether or not the License applied for,

should be granted.

20) To publish a notice in the form set out in Annexure II of the Companies Regulations, 1956,

or in the form as near thereto as circumstances admit, in the principal language of the district in

which the Registered Office of the proposed company is to be situated and circulating in that

district, and at least once in English newspaper circulating in that district.

21) The Regional Director, being satisfied on all accounts, may by a license, direct that the

association may be registered as a company with limited liability without the addition to its

name the word Limited" or the words "Private limited"

22) The Regional Director may also direct the company to insert in its memorandum or articles

or partly in the one and partly in the other, such conditions of the License as may be specified

by him in that behalf. The association may there upon be registered accordingly and on

registration shall enjoy all the privileges and be subject to the provisions of the Act and shallalso be subject to the obligations of limited companies


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23) After obtaining the License, to get the memorandum and articles, as approved by the

Regional Director, printed and to ensure that the conditions approved by the Regional Director

are incorporated therein.

24) File the following documents electronically with the Registrar of Companies for getting

the proposed company registered.

a) Stamped copy of the memorandum and articles of association. It shall be printed and divided

into paragraphs numbered consecutively and shall be signed by each subscriber, who shall

add ,his address ,description and occupation ,if any in the presence of at least one witness ,who

shall also sign and shall likewise add his address ,description and occupation, if any ( section

15 0f the companies Act-1956) ( also required to be submitted physically at ROC

simultaneously while filing electronically)

b) Stamped & Signed copy of the Articles of Association (also required to be submitted

physically at ROC simultaneously while filing electronically)

c) e-form 1 duly executed (also required to be submitted physically at ROC simultaneously

while filing electronically)

d) e-form 18 (this form may be filed within 30 days of the incorporation)

e) e-form 32 (this form may also be filed within 30 days of incorporation)

f) Any agreement that the company on incorporation proposes to enter into with any person for

appointment as its managing director or whole time director or manager.

g) Copy of e-form 1A and name availability letter obtained from ROC.

h) Power of Attorney on a non judicial Stamp paper of the requisite value signed and executed

by all the subscribers in favor of one of them or any other person for making necessary

corrections, on their behalf, in the memorandum and articles and other papers filed with the

Registrar of Companies.


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25) Along with the above detailed documents to pay the document filing fee as per the rates

prescribed in Schedule X to the Companies Act, 1956 and as per the mode of payment

discussed earlier.

26) The Registrar of Companies will thereupon scrutinize the documents filed for registration

and if they are found in order ( in the event of there being any defect ,the joint attorney will be

called by a communication to visit the Registrar's office to remove the defect) the Registrar will

register the company and allot CIN.

27) A Certificate of Incorporation will be issued by the Registrar under his hand and Seal of his

office and sent to the Company through Post A printout may be taken of the online generated

Certificate of Incorporation. The date given by the Registrar in the Certificate will be the date

of incorporation of the company, on which date the company will be considered to have come

into existence as a legal entity separate from its subscribers.

PROCEDURE FOR INCORPORATION OF EXISTING ASSOCIATION AS LIMITED

COMPANY WITHOUT ADDITION TO NAME THE WORDS LIMITED OR

"PRIVATE LIMITED"

As mentioned earlier the issue of license & incorporation of companies with limited liability

without the addition to its name of the word " Limited" or the words " Private Limited" areregulated by Section 25 of the Companies Act ,1956 and regulations 3 to 6 and 10 to 14 of the

Companies Regulations, 1956.

Regulation 3 of the Companies Regulations, 1956 lays down that any association (hereinafter

referred to as an "association " or as the proposed company") which is desirous of being

incorporated as a company with limited liability without the addition to its name of the word "

Limited or the words Private Limited shall make an application in writing to the Regional

Director at Mumbai/Kolkata/Noida/Chennai for a license under Section 25 0f the Companies


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Act, 1956.

According to Regulation 4 of the said Regulations, the application shall be accompanied by the

following documents namely:-

i) The Memorandum and Articles of Association of the proposed company.

ii) a declaration on non-judicial Stamp paper of the prescribed (also required to be submitted

physically at the concerned regional director office simultaneously of filing as attachment with

application) value by an advocate of the Supreme Court or of a High Court , an attorney or a

pleader authorized to appear before a High Court or a Secretary , or a Chartered Accountant ,in

whole time practice in India ,to the effect that the Memorandum and Articles of Association

have been drawn up in conformity with the provisions of the Act and that all the requirements

of the Act and the Rules made there under have been duly complied with in respect of

registration and matters incidental or supplemental thereto.

iii) a list of the names, descriptions ,addresses and occupations of the promoters (where a firm

is a promoter ,of each partner in the firm) as well as of the members of the proposed Board of

Directors ,together with the names of companies ,associations and other institutions, in which

such promoters ,partners and members of the proposed Board of Directors are directors or hold

responsible positions, if any, with descriptions of the positions so held.

iv) As the association is one which is already in existence, the following documents submitted

by the management thereof to its members , for each of the two complete financial years

immediately preceding the date of the application or where the association has functioned only

for one such financial year ,for such year.

a) The accounts

b) The balance sheets and

c) The reports on working of the association as submitted to the members of the association.

v) A statement showing in detail the assets (with estimated value thereof) and the liabilities of

the association as on the date of the application or within seven days of that date.


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vi) An estimate of the future annual income and expenditure of the proposed company,

specifying the sources of the income and the objects of the expenditure

vii) A statement giving a brief description of the work , if any ,already done by the association

and of work proposed to be done by it after registration in pursuance of Section 25.

viii) A statement specifying briefly the grounds on which the application is made and

ix) A declaration on non- judicial stamp paper of the prescribed value (also required to be

submitted physically at the concerned regional director office simultaneously of f