India is a developing country. It is the world's fifth-largest economy by nominal GDP and the third-largest by purchasing power parity. According to the IMF World Economic Outlook (April-2019), the GDP (nominal) of India in 2019 at current prices is projected at $2,972 billion. India contributes 3.36% of the total world's GDP on an exchange rate basis. India shares 17.5 percent of the total world population and 2.4 percent of the world's surface area. All these statistics suggest that India has immense growth potential and lots of business opportunities.
As we discuss business opportunities, it is important to know about the regulatory requirements and the process of registering a Company in India. There are about a million active companies in India and a few thousand get added every year. Of the variety of business structures available, one must choose the right structure to operate efficiently. In these articles, we are trying to share some insights on the following: -
- Different types of business structures
- Choosing the right structure
- Steps involved in the process of Registering a Company
Different types of business structures are given below:
1.One Person Company (OPC).
One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act, 2013, which reads as follows.
“One Person Company means a company which has only one member”
Any sole person wiling to register a business with limited liability may incorporate a One Person Company. As the name suggests, it requires only one person for the incorporation of OPC.
2. Private Limited Company (PLC)
Private Limited Company is defined in Sub- Section 68 of Section 2 of The Companies Act, 2013, which reads as follows.
private company" means which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in the case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,
shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company;
The minimum no. of members and directors required to incorporate a private limited company is 2. The maximum number of members in a private company can be 200.
3. Public Limited Company (PLC).
Public Limited Company is defined in Sub- Section 71 of Section 2 of The Companies Act, 2013, which reads as follows.
public company" means a company which—
(a) is not a private company
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of this Act even where such a subsidiary company continues to be a private company in its articles.
Any company other than private Companies is a public limited Company under the Companies Act, 2013. Also, private companies which are a subsidiary of a public limited company are deemed to a public company for the purpose of Compliance.
The minimum number of directors required to form a public company is 3 and the minimum numbers of members required are 7.
Choosing the right structure: The next very important task is to choose the right structure for the formation of the Company based on the objective of the Company. It is advisable to take professional advice to understand the pros and cons of different structures which can help an entrepreneur to choose the right structure.
Ideally, a person who wishes to operate business solely should incorporate a One Person Company. A group of persons having a common business objective should form a Private Limited Company.
Entrepreneurs willing to raise money from the public in the form via initial public offer (IPO) or otherwise should form a Public Limited Company.
Basic requirements for registration of a Private Limited Company-
- Capital: There is no minimum capital required to form a Private Limited Company in India.
- Directors: Minimum two directors are required to incorporate a Private Company in India. Both should be individuals and at least one of whom should be a resident of India. (A resident of India is a person who has stayed in India for at least 182 days in the previous year).
- Shareholders: Companies Act, 2013 requires that a Private Limited Company have a minimum of two shareholders. There is no condition for the residential status of shareholders. Shareholders can be either individuals or entities or a combination of both.
Steps involved in the process of Registering a Company
1. Choosing your Company Name.
It is the foremost thing in the process of Company incorporation. One must keep a name that defines the business object. Name which is relatable and easy to remember.
As per the Name availability guidelines, the name of the proposed company should not be similar to the name of an existing company and also should not carry any word which is a registered trademark.
Other guidelines pertaining to name reservation are as follows: -
- The name stated in the memorandum shall not be such that its use by the company will constitute an offense under any law for the time being in force, or is undesirable in the opinion of the Central Government.
- The name shall be considered undesirable, if-
- it attracts the provisions of section 3 of the Emblems and Names(Prevention and Improper Use) Act, 1950 (12 of 1950);
- it includes the name of a registered trademark or a trademark which is subject of an application for registration, unless the consent of the owner or applicant for registration, of the trademark, as the case may be, has been obtained and produced by the promoters;
- it includes any word or words which are offensive to any section of the people;
- the Company’s main business is financing, leasing, chit fund, investments, securities or a combination thereof, such name shall not be allowed unless the name is indicative of such related financial activities, viz., Chit Fund/ Investment/ Loan, etc.;
- the proposed name contains the words ‘British India’;
- the proposed name implies association or connection with embassy or consulate or a foreign government;
As per Rule 9 of Chapter II The Companies (Incorporation) Rules, 2014, An application for reservation of name shall be made through the web service available at www.mca.gov.in by using form RUN (Reserve Unique Name) along with fee as provided in the Companies (Registration offices and fees) Rules, 2014, which may either be approved or rejected, as the case may be, by the Registrar, Central Registration Centre after allowing re-submission of such application within fifteen days for rectification of the defects, if any.
2. Application for Digital Signature.
The next step is to obtain a digital signature from any agencies authorized such as E-Mudhra, Capricorn, etc. The process of obtaining a digital signature involves the submission of identity and address proof, Mobile Number verification via OTP, Email verification through link and photo identity verification via video verification.
3. Identification of Registered office
The next step is to identify the registered office address of the Company. The registrar of Companies is allocated to Companies on the basis of their concerned registered office address. In the relation of registered office the following documents are required: -
- Utility bill in the registered office address viz. electricity bill, mobile bill, gas bill or any other bill.
- No objection certificate from the person in whose name the aforesaid utility bill is issued or Rent/ Lease agreement executed if any with the owner.
4. Preparation of Incorporation documents.
The next step in the process of incorporation is to prepare the documents required for the purpose of Incorporation. The following documents are required for the purpose of incorporation.
1.Consent to act as Director in form DIR-2: The proposed directors have to provide consent in form DIR-2. The format of a consent letter also provides for the following declaration: -
I declare that I have not been convicted of any offense in connection with promotion, formation or management of any company or LLP and have not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law in the last five years. I further declare that if appointed my total Directorship in all the companies shall not exceed the prescribed number of companies in which a person can be appointed as a Director.
2. Declaration by subscribers/first directors in form INC-9: The subscribers/first directors are required to give declaration in form INC-9 stating the following: -
- no conviction of any offense in connection with the promotion, formation or management of any company during the preceding five years.
- not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years
- All the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of my knowledge and belief.
3. Charter Documents Articles of Association (AOA) and Memorandum of Association (MOA): These are some of the very important documents of a Company. AOA defines the rules and regulations with which a Company is being run and MOA is the constitution of the Company which states its name, state in which registered office is situated, the object of the Company, Authorised Capital and the names of the first subscribers. It is advisable to take the help of professionals in drafting these documents.
Requirements for incorporation of an Indian company which is subsidiary of a Foreign Company or an entity incorporated by Foreign Nationals which receives Foreign Direct Investment, the process is as under:
In addition to the documents as mentioned above, there will be an additional requirement of getting the documents notarized, consumerized or apostilled in the home country.
Case 1 - If the documents are signed outside India, then the same has to be notarized by a Public notary of the residence country and consumerized or apostilled by the competent authority, as the case may be.
Case 2 - If the documents are signed in India, then a copy of Visa and stamped passport, proving his/her presence in India at the time of signing is required.
Case -3 - If the subscriber is a foreign entity, then the Incorporation documents should be signed by the representative of the foreign entity. An Authorization Letter/Board Resolution duly stating the name of the Authorized Person and the number of shares subscribed should be notarized, consumerized or apostilled, as the case may be in the home country of the subscriber company.
5. Filing of Incorporation form: After all the aforesaid documentation is complete, the next step will be to prepare and file incorporation forms.
The forms required to be filed in the process are: -
- Simplified Proforma for Incorporating Company Electronically (SPICe) - with mandatory PAN & TAN application included.
- E-Memorandum of Association (SPICeMoA)
- E-Articles of Association (SPICeAoA).
- Application for Goods and Services Tax (GST)Identification number, Employees State Insurance Corporation (ESIC) registration and Employees provident fund (EPFO) organization registration through AGILE Form
The application is submitted to Central Registration Centre (CRC) and upon scrutiny of documents, the CRC issues Certificate of Incorporation with PAN and TAN.
Reporting Requirements post Incorporation in case a company received Foreign Direct Investment:
An Indian company issuing capital instruments to a person resident outside India, and where such issue is reckoned as Foreign Direct Investment, shall report such issue in Form FC-GPR 22 in the Single Master Form not later than thirty days from the date of issue of the capital instruments.
An Indian company that has received FDI in the previous year(s) including the current year, shall submit form FLA to the Reserve Bank on or before the 15th day of July of each year.
Other related posts-
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India has improved considerably in business regulatory areas relating to starting a business, dealing with construction permits and resolving insolvency as a result of which India climbed 23 points in the World Bank's ease of doing business ranking index to 77th place in 2019, becoming the top-ranked country in South Asia for the first time and third among the BRICS.
The entire contents of this document have been developed based on relevant information and are purely for private circulation. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.