Over the past few years India has witnessed an exponential growth in the number of companies, of various scales and across various industries. The Government policies and the corporate stand-still during the pandemic have fuelled the fire of the booming entrepreneurial spirit. All in all, India is now a veritable hub of nascent companies rising through the global rankings.
As a company owner, formation of the company may seem like a taxing mission (pun intended), but is actually much easier than it seems. To be fair, changes and improvements in Government policies and digitization of the process to a significant extent, has definitely eased the logistical toll involved in the formation of the company in India.
As long as you have created a bedrock of sound business strategy and keep the points we discuss over the course of this article in mind, starting your own company in India should be a breezy adventure.
Listed below are the primary stages you’d need to know for the formation of the company, taking your company from an ‘idea’ to a functioning enterprise.
- Promotion Stage
- Incorporation Stage
- Capital Subscription Stage
- Commencement of Business Stage
Although all these steps are relevant for both public businesses (public limited company or Public Ltd. Company) and private corporations (private confined organization or Private Ltd. Company), the two initial phases of Promotion and Incorporation are the most crucial for private corporations. A non-public company can right away begin commercial enterprise after incorporation level as they don’t require to raise public funds.
1. Promotion Stage
The first step in the direction of formation of the company you’re looking to build includes drawing up the enterprise opportunity and taking the initiative to give it the right shape.
Who is a Promoter?
The ‘Promoter’ not only promotes the enterprise idea but additionally analyses the potentialities of enterprise, and aids in assembling HR, raw materials, and monetary assets to provide a running shape to the enterprise.
A Promoter is could be an individual, like J.N Tata, G.D. Birla, or Dhirubhai H. Ambani, or typically a set of people coming together to build a corporation.
Obligations of a Promoter
Here’s an overview of how a Promoter benefits your company and their obligations:
- Identifies a business opportunity
- Conducts possible evaluation of:
- Technical feasibility
- Economic feasibility
- Financial feasibility
- Aquires name approval
- Prepares essential files
- Appoints experts
- Arranges for signatories to the Memorandum of Association
The folks that sign up the Memorandum of Association are referred to as ‘Subscribers’. They are also the appointed Directors of the organization. The Memorandum of Association is to be signed by 7 people for a public organisation and a pair of people for a non-public employer.
Documents to be Submitted
The required documents to be submitted in this phase are:
- Memorandum of Association: The Memorandum of Association also known as the ‘Charter of the Company’ is the precept report of the agency as it defines the objective of the organization.
It additionally incorporates the limitations of the enterprise and its relation with the outside world.
No enterprise can work beyond the restrictions chalked down with the aid of the Memorandum of Association.
There are sure clauses under the Memorandum of Association, including:
- The Name Clause
- Registered Office Clause
- Objects Clause
- Liability Clause
- Capital Clause
- Association Clause
- Articles of Association: The Articles of Association or the ‘Bylaws of the Company’ incorporate the guidelines for inner control of the enterprise. It defines the rights and powers of the Board of Directors.
The contents of the Articles of Association are:
- Amount of proportion capital as well as unique training of shares.
- Rights of shareholders.
- Procedure for issue and allotment of stocks.
- Procedure for issuing percentage certificates.
- Procedure for switch of shares.
- Procedure for forfeiture of stocks.
- Procedure for reissue of shares.
- Procedure for accomplishing various meetings.
- Procedure for appointment of directors.
- Procedure for elimination of directors.
- Duties, powers and remuneration of administrators.
- Procedure of assertion and payment of dividends.
- Winding up method.
- Maintenance of bills and their audit; and
- Seal of the business enterprise.
- Consent of Proposed Directors: A written consent of administrators is needed mentioning that they’ll agree to buy and pay qualification shares of the organisation to make sure their proposed stake.
- Copies of Agreement: The agreement, if any proposed by using the corporation with another man or woman for their appointment as handling director or so, needs to be submitted to the Registrar.
- Statutory Declaration: A Statutory Declaration needs to be submitted to the Registrar stating that every one felony requirements for registration are being complied with.
- Evidence of charge of expenses: Along with the proper above referred to files, vital costs additionally need to be paid for registration which depends upon the percentage capital of the enterprise.
2. Incorporation of a Company
The second level in the formation of a corporation, Incorporation, means registration of the enterprise under the Companies Act, 2013.
After going through the aforementioned formalities the Promoters of the employer report software for the Incorporation of the employer with the Registrar of the Companies of the state where they plan to set up the registered workplace of the company.
The application needs to be observed with the aid of the cited earlier:
- Memorandum of Association stamped, signed, and witnessed. It should also contain data about address, profession and wide variety of stocks subscribed by the signatories.
- Article of Association stamped, signed, in addition to witnessed.
- Written Consent of the Proposed Directors and a mission to buy qualification stocks.
- Agreement, if any present, with the proposed Managing Director, Manager, and so forth.
- A copy of the Registrar’s Letter approving the Name of the Company.
- A Statutory Declaration, putting forward that each of the legal necessities of registration have been submitted.
- Notice the precise Address of the Registered Office.
- Documentary evidence of Payment of Fees.
Relevance of Certificate of Incorporation
With the print of the Certificate of Incorporation a business enterprise turns into a prison entity with the capacity to enter into valid contracts. A private agency is not able to instantly commence its business after gaining the Certificate of Incorporation because it additionally has to achieve a Certificate of Commencement of Business.
A public organization has to go through two extra levels for its formation.
3. Capital Subscription Stage
A public business enterprise has to trouble a prospectus inviting packages for shares from the public for subscription or purchase of shares or debentures.
According to phase 2(70) of the Companies Act, 2013 a prospectus is any report as in step with sections 31 and 32 that invites offers from the general public for the subscription or buy of stocks or debentures of a frame corporate. This is due to the fact a public business enterprise has to raise the price range from the general public.
There are sure steps to be followed for this phase, namely:
- SEBI Approval: SEBI (Securities and Exchange Board of India) is an expert that regulates the capital marketplace in India in order to shield the best interest of the traders. A business enterprise inviting finances from most people has to follow the SEBI recommendations together with its prior approval.
- Filing of Prospectus: A reproduction of the prospectus issued through the organization is to be filed with the Registrar of Companies at the time of formation of the company.
- Appointment of Bankers, Brokers, and Underwriters: Companies employ merchant bankers to acquire the application cash along with agents who are to encourage and motivate the public to opt for the stocks and distribute the software bureaucracy to them. The company must also have underwriters adopt and promise to shop for the stocks, if the general public does not subscribe them.
- Minimum Subscription: In order to prevent agencies from starting off business with inadequate finances, it is provided that an agency should acquire the amount of minimum subscription. According to the Companies Act, the minimal subscription should be 90% of the entire wide variety of stocks supplied to the public.
- Application of Stock Exchange: It is important for a public organization to get its shares indexed on an inventory trade. If the enterprise going the public route fails to use an inventory change for permission to deal in its securities or fails to get such permission within 10 weeks from the date of closure of subscription listing, the allotment shall become void. Consequently, all money received from the candidates will need to be returned to them within 8 days.
- Allotment of Shares: After getting listed in the stock trade, the business enterprise makes allotment of shares in step with the recommendations of SEBI (Securities Exchange Board of India). Allotment letters are issued to the targeted allottees. The enterprise returns the application money to the candidates to whom no shares are allotted. In case the stocks allocated are much less than stocks applied, excess application money is either refunded or adjusted in the direction of allotment cash.
4. Commencement of Business
If the amount of minimal subscription is raised through the new issue of shares, a public enterprise applies to the Registrar of Companies for the issue of Certificate of Commencement of Business.
The following documents are required for the same:
- An assertion that shares payable in cash had been subscribed for and allocated.
- A declaration that each director has paid in cash- the application and allotment money on his stocks.
- A statement that no money is payable or prone to become payable to the applicants.
- A statutory assertion that the above requirements were complied with.
Relevance of Certificate of Commencement of Business
The Registrar examines all the documents filed, and if he finds everything in order, a ‘Certificate of Commencement of Business’ is issued. The grant of this certificate will complete the method of formation of the company for you.
The company can start its business activities from the date of issuance of the certificate. It is the conclusive evidence that an organisation is entitled to do enterprise. The enterprise should be in accordance with the objectives laid down within the Memorandum of Association.
You May Also Like:
- A Step-By-Step Guide To Company Registration Process In India
- 7-Step Guide To Get Your Startup Registered Under Startup India Scheme
- 6 Quick Steps To Set Up A Private Limited Company In India
We hope this article has given you an overview on formation of the company in India, and encouraged you to set sail on your entrepreneurial journey.