10 December 2009

Formation/Incorporation Of New Company


A company is a separate legal entity incorporated under the law. It is an association of persons who come together to carry on a common business and undertake to contribute to the capital of the business. Companies Act, 1956 has laid down law relating to formation, management and winding up of company.

The application for incorporation of the company is to be made to Registrar of Companies in the State in which the company is to be incorporated.

The persons who associate to form a company are known as promoters. To form a private company there must be at least two promoters and to form a public company there must be at least seven promoters.

Promoters of the company must get the name of the proposed company approved by the Registrar.

The promoters have to decide whether a company is to be incorporated as private company or public company. A private company must have minimum 2 members and can have maximum 50 members. A public company must have minimum 7 members. There is not limit for maximum number of members in public limited company.

A company may be incorporated with limited liability or unlimited liability or liability to the extended guaranteed by the members. The promoters have to decide on the nature of liability of members of the new company.

The promoters decide on the nature of activity to be formed by proposed. They have to be mentioned these activities in the object clause of the Memorandum of Association. A company cannot carry any activity, which is not laid in the Memorandum of Association. So the nature of activities has to be described exhaustively.

Based on the objects of the company, the promoters have to decide the Authorised capital with which the company is to be incorporated.

The promoters associate by signing the agreement called ‘Memorandum of Association’. To define the internal relation amongst the promoters and members the promoters prepare and sign and agreement to called the “Articles of Association’.

‘Memorandum of Association’ and ‘Articles of Association’ are two basic documents to be signed by the promoters for formation of the company. These document when registered with and approved by the Registrar give legal sanctity to the association.

Steps (& Requirements) involved in formation of a company.

  1. Appling for Director Identification Number (DIN) of all the persons proposed as first director of the company,
  2. Acquiring Digital Signature by one of the ‘Promoter and Proposed director’,
  3. Getting approval of Name of proposed company,
  4. Preparation of documents such as ‘Memorandum of Association’, ‘Articles of Association’, etc., collectively known as ‘Document of Incorporation’,
  5. Preparing application intimating address of proposed company in e-form,
  6. Getting consent form proposed directors to Act as Director of company on its incorporation,
  7. Preparing application declaring the names of first director of the proposed company in e-form,
  8. Payment of Stamp-duty applicable in state in which the company is to be incorporated, either by physical stamping on documents of incorporation or e-payment via MCA portal,
  9. Signing on documents of incorporation by promoters and witness,
  10. Scanning signed documents of incorporation for uploading,
  11. Getting declaration form Chartered Accountant, Advocate, Secretary that all the requirements of the Act and Rules there under have been complied with in relation of registration (in e-from),
  12. Power of Attorney in favour of Chartered Accountant to enable him fill full all formalities on behalf of the Promoters,
  13. The application is then to be submitted by uploading it at MCA portal,
  14. Pay filing fees to the register, either by depositing in designated bank or making online payment through credit card or internet banking account
  15. Getting approval from ROC after inspection of application.
  16. Obtaining Certificate of Incorporation,
  17. Printing of approved Articles and Memorandum of Application.
  18. Obtaining Certificate of Commencement of Business in case of Public Company.

Stamp Duty and Filing Fees Ready Reckoner.