Company incorporation in India requires complex due -diligence, research, and extensive documentation completion, which can pose a challenge for businesses that do not have an understanding of the local laws and regulations. Also, conjunction with the local authorities and adherence to their guidelines and regulations about company incorporation in India is another factor that can cause operational hindrances to the company formation process. The process of company incorporation in India entails in-depth research and analysis, followed by thorough due diligence on the business environment and market conditions of India and creating a comprehensive assessment of all prevailing statutory compliances and regulatory frameworks to ensure your company formation endeavour is seamless.
What is Company Incorporation?
Company Incorporation in India is the method of setting up a business, giving it a legally recognized name and identity, and carrying out activities in accordance with the laws and guidelines applicable to the business activity. The Ministry of Corporate Affairs is the Nodal Agency that governs company incorporation and the legal compliance requirements necessary for the company to follow.
Company incorporation in India can be of two types – private company and public company. A private Company is defined in the Companies Act 2013 as a company that has a restriction on the transfer of its shares, i.e. shares are closely held by a group of individuals or entities and cannot be transferred sparingly. On the other hand, a Public Company does not have such a restriction and can freely transfer its shares to the public in general. For the purpose of company incorporation in India, a minimum of two directors and two shareholders are required to sign and execute a valid agreement for company incorporation in India.
Benefits of Company Incorporation
If you register a company in India, in accordance with the laws and regulations as laid down by the Companies Act, 2013, the legal entity shall enjoy the following benefits of company incorporation –
A company is a legitimately existing legal entity authorized to exist by the Companies Act of 1956 and the recently amendment Act of 2013. It is a legally established artificial person whose existence exists independently of those of its directors and stockholders. This legal person was created as per the provisions of the Companies Act and rules. The legal identification of a thing as a person is indicated by the term “juristic person.” A company has the ability to file lawsuits and cases in its own name. A company incorporated in India has its rights, obligations, and legal personality. A company becomes an individual entity upon establishment. It has a separate legal identity of its own, as a company can own its property and incur debts.
A legal obligation to pay only a certain number of debts and liabilities up to the responsibility of an entity is known as limited liability. Members’ liability with regard to the company’s debts is restricted, meaning it is capped at the face value of the share they bought. The terms and conditions may differ in cases where members of the company have contractually agreed to unlimited liability with regard to debts, obligations, litigations, and other liabilities. We refer to these businesses as unlimited liability companies.
Can Acquire Property in Its Own Name
Property can be acquired, owned, enjoyed, and transferred under the name of an incorporated company. Since shareholders and promoters do not own the company or are beneficiaries of the chattels, assets and properties of the company, they are not entitled to any of its assets and possessions. A shareholder’s stake in the business is limited to the amount of liability specified in the company’s articles of association. The shareholder is not entitled to a cut of the company’s profits. It is nevertheless governed by the agreement stated in the association’s articles of association. Thus, a member’s personal property is not the company’s property.
Credibility of Business
A registered company helps your business become more recognizable in the marketplace and enhances its credibility among the consumer base. Through incorporation of a Company, the business is proving to potential customers that you take your business seriously and have taken the essential measures to make it a legally recognized organization. When interacting with clients, vendors, or investors who might be reluctant to do business with an unregistered company, this can be particularly crucial.
A number of tax breaks and incentives are available to registered businesses. Tax exemptions, tax deductions, and reduced tax rates are a few examples of this. You may profit from these advantages and reduce your tax liability by registering your business.
Process of Company Incorporation
The company Incorporation process in India is lengthy and requires meticulous attention to detail while making submissions and disclosures. The promoters and members are required to get a valid Certificate of Incorporation from the Ministry of Corporate Affairs (MCA) in order to set up a company in India. A company shall be incorporated by observing all necessary compliances required to set up an entity in India. Let us see what is the step-by-step procedure to incorporate a company in India-
1. Choose a Business Name
The first step towards Company incorporation is the selection of a business name that would represent your company. The company name must be unique, composite, and not against public policy and law. To file for an application with regards to Company formation in India with the Ministry of Corporate Affairs, you are required to prepare your company’s important documents, such as the Memorandum of Association, Articles of Association, LLP/ Partnership deed, and other documents, which are your company’s charter documents.
2. Select a business structure
The Companies Act provides a number of business structures that can used for the purpose of company registration. Based on the requirements, objectives, and long-term goals of a business, the company structure should be selected. Indian laws provide for the formation of companies in the following forms – Company, Limited Liability Partnership (LLP), One Person Company, Public Company, etc. Out of these business structures available to the companies registering in India, the business owner must select which business structure best suits the aspirations and objectives of the venture.
3. File necessary documents with the MCA
After the charter documents for company formation in India – MOA, AOA, Trust/LLP Deed, shareholders agreement, expression of interest, etc. are drafted and duly stamped and notarized, the company representatives shall proceed to file the documents with the MCA and Registrar of Companies (ROC) and the requisite registration fees is paid.
4. Obtain required licenses and permits
Based on the business activity, the company is required to procure requisite licenses and permits from the concerned ministry/govt. Department. The various Business Licenses, such as food licenses, fire safety licenses, oil and petroleum licenses, labour and employment licenses and clearances, factory and industrial licenses, etc, are all necessary and complimentary documents of the business activity of the company. They are required to be obtained from the concerned authority after filing the required applications,
Legal Requirements and Compliance
Here are the legal requirements and compliance that a company has to follow after incorporation:
Meeting statutory obligation
For a Company to establish its base and operate effectively depends greatly on its ability to fulfil its statutory obligations, especially in the case of a Private Limited Company. A Private Limited Company that has been incorporated in India has to make sure that all legal and regulatory requirements set out by the Companies Act, 2013 are satisfied. The appointment, qualifications, compensation, and retirement of the company’s directors, as well as other matters like general and board meetings, transfer of shares and securities, annual reporting and compliances, etc., are governed by the Companies Act, 2013. For registered private limited companies, compliance with the ROC guidelines and regular reporting of business activities with the ROC are essential. The company is required to adhere to the annual compliance requirements, regardless of the overall turnover or capital amount invested.
Every company that is registered in India, including section 8 companies, private limited companies, limited corporations, and one-person firms, must maintain annual compliance, including annual returns and income tax returns every year. After the incorporation of the company, there are various compliances that are required to be adhered to.
Practices of Corporate Governance
The Practice of Corporate Governance refers to the systems, principles, and controls that regulate the overall functions of a company. A company’s governance makes sure that it is managed and directed to meet its aims and objectives, which includes creating value for the business venture and benefiting all stakeholders, including shareholders, promoters, customers, suppliers, and employees, in the long run. In reality, the board of directors and the corporate committees carry out corporate governance initiatives on behalf of the company’s stakeholders. In corporate governance, objectives related to individuals, society, and the economy are all balanced.
Compliance with local laws and regulations
While complying with the Companies Act and SEBI guidelines Is crucial for any company, ensuring compliance with local laws and regulations is equally important. A business has to take care of several local laws and licensing requirements, such as the FSSAI Act, Drugs and Cosmetics Act, Shops and Establishments Act, Factories Act, and other Labour Laws and regulations relating to secondary functions of the company. The local laws are essential to be taken care of since they are formed keeping in view the intrinsic and unique geographical, economic, and social composition of a state, region, or location.
Company Incorporation in India is a task that requires expert precision and professionalism to meet all the required requisites and requirements. From selecting a business name and type to filing all necessary documents, forms, and disclosures with the regulatory authorities, payment of requisite fees and post-incorporation compliances, and annual and periodic reporting requirements. In order to make a company set up, run, and grow, a lot of sectoral compliances are also required to be kept in mind, such as local licenses, Municipal and building permits, labour and HR compliances, annual audits etc.
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Frequently Asked Questions(FAQs)
In India, as per the Companies Act, 2013, a company can be incorporated in the form of the following business structures-
i) Private Limited Company
ii) Public Limited Company
iii) One-Person Company
iv) Section 8 Company
v) Limited Liability Partnership
vi) Non-Profit Organization (s.25 Companies)
A Memorandum of Association (MOA and Articles of Association (AOA) are two documents that serve as crucial information sources for different owners and other parties involved in the company. The MOA discloses a company’s name, goals, objectives, registered office address, limited liability clause, minimum paid-up capital, and share capital. It clarifies how a company would interact with the outside world and other entities. AOAs are the required paperwork that must be filed with the Registrar of Companies (ROC) upon incorporation of the business. AOAs are referred to as the Company’s Constitution when they are used in conjunction with the MOA.
As per the Companies Act, A Private Limited Company must have two directors and at least two members and may have a maximum of 50 members. Directors and members of a Private Limited Company should meet at regular intervals, and all its transactions should be audited. The name of such a company ends with the words ‘Private Limited’ or “Pvt Ltd.”
The Limited Liability Partnership is a low-cost organizational structure that combines the flexibility of a partnership with the advantages of limited liability for the owners. They are governed by the Partnership Act of 2008. To put it another way, it’s a hybrid form of a company and a partnership in which each member is exempted from liability for any untoward or illegal act of the others.
In order toset up a public company, a minimum required share capital of Rs. 5 lakhs is required, whereas for a private company, there is no minimum paid-up capital required.
Yes, in India, a Private Limited Company must have a minimum of two shareholders. If one of the two owners has all of the remaining shares and the other retains just one, that is adequate.
A Company has a separate legal existence and identity, the ability to acquire property and assets in its name, a seal and stamp, can avail tax benefits, and also has the ability to file lawsuits and defend lawsuits filed against it.
The documents that are required to be filed by the directors for the purpose of company incorporation in India are a memorandum of Association, Article of Association, Trust Deed/ LLP Deed, Form – SPICE+, DSC and Personal details of the director, such as PAN, AADHAR, Voter-ID card etc.
Typically, a company remains in existence for an indefinite period of time since the Certificate of Incorporation does not have an expiration date.
Read Our Article: Procedure For Incorporation Of A Section 8 Company