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Formation of a Company

June 15, 2010

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1. Which is the best suitable business organization?

Answer: A business enterprise can be owned and organized in several forms. Each form of organization has its own merits and demerits. The ultimate choice of the form of business depends upon the balancing of the advantages and disadvantages of the various forms of business. The right choice of the form of the business is very crucial because it determines the power, control, risk and responsibility of the entrepreneur as well as the division of profits and losses. Being a long term commitment, the choice of the form of business should be made after considerable thought and deliberation.

The following are the kinds of business organizations allowed in India:

  1. a.  Company
    1.     i.  Public Limited Company
    2.     ii. Private Limited Company
    3.     iii. Unlimited Company
    4.     iv. Non-Profit Oriented Company
  2. b. Partnership
    1.     i. Conventional Partnership
    2.     ii. Limited Liability Partnership (LLP)
  3. c. Sole Proprietorship
    Selection of the best frame work for a business venture depends on various aspects such as

      1. The nature/kind of the business and the scale of the activity being undertaken.       2. The Governing Laws applicable to each form and the formalities to be complied with.       3. The tax structure       4. Funds requirement, etc.     For example, a business in small scale with lesser capital investment requirements may go for a Private Limited Company     and where a business is huge and requires funding from general public may go for the Public Limited Company.

Hence, it is very important to assess the requirements of the business venture in terms of the capital, its compliance requirements, tax structure, and capability of the promoters, etc., to decide on the best suitable business form for a given venture

2. Are there any other business structures available to Foreign Investors?

Answer: Yes, the following types of entities are available for the Foreign Investors willing to do business in India:

• Liaison Office • Representative Office • Project Office • Branch Office • Wholly owned Subsidiary Company • Joint Venture Company

3. What is a Private Limited Company?

Answer: A private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures.

Hence, a private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.


• Continuity of existence • Limited liability • Less legal restrictions


• Shares are not freely transferable • Not allowed to invite public to subscribe to its shares • Scope for promotional frauds • Undemocratic control

4. What is a Public Limited Company

Answer: A public limited company is a voluntary association of members which is incorporated and, therefore has a separate legal existence and the liability of whose members is limited.


• Continuity of existence • Larger amount of capital • Unity of direction • Efficient management • Limited liability


• Scope for promotional frauds • Undemocratic control • Scope for directors for personal profit    Subjected to strict regulations

5. Can anyone form a Company?

Answer:Yes. Except for a Partnership Firm, anyone (individuals, companies, partners of a firm) subject to the provisions of the Companies Act, 1956 can form a Company

6. What are minimum capital requirements, Directors and Subscribers for a Private and Public Company?

ParticularsPrivate Ltd CompanyPublic Ltd Company
Minimum Directors 23
Minimum Subscribers 2 7
Minimum Paid-up CapitakRs.100,000/- Rs.500,000/-

7.What is the Capital of the Company?

Answer:The authorized capital is the capital limit authorized by the Registrar of Companies (ROC) up to which the shares can be issued to the members / public, as the case may be. The paid up share capital is the paid portion of the capital subscribed by the shareholders.

8. Can I choose any name for my company?

Answer: Yes, you can choose any name you like as long as it is not already registered, 'same as' or 'too like' an existing company name or likely to cause offense. Some words in company names which are sensitive are however restricted or forbidden.

9. What is Memorandum and Articles of Association of the Company?

Answer:The Memorandum of Association (MOA) states the main, ancillary / subsidiary and other objects of the proposed company. The Articles of Association (AOA) contains the rules and procedures for the routine conduct of the proposed company.

In case, the above documents are executed out of India, the documents have to be Appostilled or witnessed by the Indian Embassy as per the requirement.

10. What is Director Identification Number (DIN)?

Answer: Every individual proposed to be appointed as a Director need to have a Director Identification Number (DIN). It has to be obtained prior to filing incorporation documents with the ROC including name availability application i.e. e form 1A.

11. What is Digital Signature Certificate (DSC)?

Answer: All the documents have to be filed with the ROC through electronic filing (e-filing) and same requires authentication through DSC. At least one director need to have a DSC issued under the Information Technology Act 2000 to file name availability and incorporation documents.

12. What are the statutory Fees involved in the formation of the Company?

Registration Fees:

Registration fees for the incorporation would depend on the proposed authorized capital. For the first Rs.1,00,00,000/- (Rupees One Crore only) authorized capital the fees is Rs.1,56,000/- (Rupees One Lakh Fifty Six Thousand only). For every subsequent one Crore authorized capital the fees is Rs.50000/- (Rupees Fifty Thousand only)

Nominal Fees:

Besides the registration fees there would be nominal fees for filing of certain Forms involved in the Formation. Again the fee for the Form depends on the Authorized Capital of the Company.

Note: Crore is a term used often in India that denotes 10,000,000 (One Crore equals Ten Million)

Stamp Duty:

For incorporation of a Company in the “State of Andhra Pradesh” will attract following stamp duty: - Memorandum of Association – Rs.500/- (Rupees Five Hundred Only). - Articles of Association – 0.15% on the Authorised Share Capital.

13. Can we start the business immediately after formation of a Company?

Answer:The Private Company can start its business immediately on incorporation. But a public company cannot commence business immediately. It has to complete certain other legal formalities such as a Statutory Meeting (within 6 months), Statutory Report, etc. even after receipt of the certificate of incorporation. On completion of the said formalities and on filing of the statutory report with the ROC the ROC issues the Certificate of Commencement of business to the company. Thereafter, the Public Company can start the business operations.

14. What are the other registrations required to run the business after its formation?


• Obtaining Permanent Account Number (PAN) and TAN from Income Tax Department • Sales Tax and VAT Registrations • Registrations under Shop and Establishments Act • Registrations under Labour Laws (Provident Fund, etc.) • Registration for Import Export code from Director General of Foreign Trade • Software Technologies Parks of India registration (STPI) if required

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