Starting your business in India marks one of significant milestones in your entrepreneurial journey as India is among the top destination for doing business and for especially setting up manufacturing units here, due to its rapidly growing economy, cost efficiency, and a vast pool of skilled talent.
Therefore, before starting your operations in India- you must understand all the legal procedures and incorporation steps as per the law, because legal incorporation gives your business a separate legal identity, allowing it to own property, enter into contracts, and protect its shareholders’ limited liability.
Understanding Company Incorporation in India
Company incorporation refers to the legal process of forming a new company as a distinct entity that is separate from its owners. Once incorporated, the company gains corporate legal status recognized by company law and the Ministry of Corporate Affairs (MCA).
In India, there are various types of companies and business structures, and you can choose the one that best suits your business needs and goals. In this article, we will mainly focus on Private Limited Companies and Public Limited Companies, along with a detailed step-by-step process for company incorporation in India, covering the essential requirements and key points every entrepreneur should know.
A public company is an entity, the ownership of which is disseminated to the general public in the form of shares or securities that are freely traded on any stock exchanges or over-the-counter exchanges or can be acquired privately through an Initial Public Offering (IPO)
The model of a public limited company (Pvt Ltd..) provides a huge platform for entrepreneurs to expand their business horizons nationally as well as internationally. A public company can raise money from the general public, and they have a full stake and interest in the company.
Eligibility and key Characteristics of a Public Company
Minimum Requirements of Directors: A minimum of 3 and a maximum of 15 individuals can be directors of the company, as well as constitute the board of directors (Board) of the company, who are responsible for its management. At least one director should be an Indian resident who stayed in India for more than 120 days in the previous year.
Name of the Company: The company’s name must end with the word “Limited” or “Ltd.”
Registered Office: A mandatory registered office for receiving official communication. Any change in the registered office requires prior approval from the Registrar of Companies (ROC).
Capital Requirement: No minimum paid-up capital requirement for incorporating a PLC in India.
Business Activities: Every company can conduct any business activity provided it is not illegal. A company can alter its business activities by getting prior approval from shareholders in a general meeting and subsequently altering its Memorandum of Association (MOA).
Shareholders and Liabilities:There is no maximum limit on the number of shareholders. The liability of shareholders is limited; however, companies always have unlimited liability.
Benefits of Incorporating a Public Limited Company in India
a. Limited liability of shareholders:Shareholders can hold any number of shares in a company and also relish the benefits of limited liability, i.e., in case of payment of debt or losses incurred by the company, shareholders will be liable only to the extent of the amount remaining unpaid on the shares held by them.
b. The company’s Growth Prospects: The Diversified option of raising funds results in opening the avenues of growth for the company and its business activities. Growth of any business could be a result of any of the following activities:
Undertaking a new project
Acquisition of improved or advanced technology
As a result of research and development
Paying off all the liabilities or writing off its debts
Enhanced brand or market value
Entry into an unexplored market or global markets
Diversifying product lines or operations
c. Borrowing capacity of the Company: An Invitation is made to the public at large for raising funds in a PLC. Stringent rules and regulations are mandatorily adhered to under different laws, which restore the faith of both banks and financial institutions in lending funds.
d. Share Transferability: Shares of PLC can be freely transferred from one P’erson to another. This transfer activity can be continued at any number of times.
e. The company’s liquidity: Due to easy availability as well as trading of shares in the market, PLC provides high liquidity for its shareholders. No complex procedure or stringent provisions are followed while selling the shares of PLC in the market.
f. Enhanced credibility: PLC operates under stern legal rules and regulations, because of which it has more credibility than any other form of company. Different provisions under different laws administer the operations of the company; hence, it is obligatory for all companies to maintain transparency between themselves and the company.
One of the most popular legal structures for incorporating a company in India is a Private Limited Company. Registering a private company in India should be the first and foremost priority, as a registered company enjoys multiple benefits, starting from easy registration to easy dissolution
Private limited company setup is most popular among growing companies and startups because of easy outside funding, limited liability of shareholders, and the offering of employee stock options to pull in top talent.
Eligibility and characteristics of Registering a Private Limited company in India
Minimum Requirements of Directors: A private company must have at least 2 members and 2 directors (maximum 15). The maximum number of members cannot exceed 200. At least one director must be a resident of India, i.e., stayed in India for more than 120 days in the previous year.
Name of the Company: The company’s name must end with the words “Private Limited” or “Pvt. Ltd.
Registered Office – The company must have a registered office address for receiving all official communications. Any change in the registered office requires prior approval from the Registrar of Companies (ROC).
Capital Requirement – There is no minimum paid-up capital prescribed for incorporating a private limited company in India.
Business Activities – The company can undertake any lawful business activity and may alter its business objectives with shareholders’ approval and corresponding amendments to the Memorandum of Association (MOA).
Shareholders and Liability – The liability of members is limited to the amount unpaid on their shares. In case of default, creditors can recover dues only from company assets, not from the personal assets of directors or shareholders.
Transfer of Shares and Public Offering –A private limited company is limited by its shareholders; therefore, its shares cannot be publicly traded on a stock exchange. It is also not permitted to invite the general public to subscribe to its shares or trade them on any stock exchange.
Benefits of Incorporating a Pivate Limited Company in India
A private limited company enjoys multiple benefits as mentioned below:
Enhanced Borrowing Capacity: Banks, investors, and venture capitalists prefer investing in a private limited company, giving them an edge in raising funds and securing financial support.
Easy Registration and Management: Incorporating and managing a private limited company is relatively simple, with streamlined registration procedures and flexible compliance requirements.
Freedom from Stringent Market Regulations: Private companies’ shares are not traded on stock exchanges; hence they are not required to adhere to stringent securities of market regulations. In other words, the flexibility of a partnership firm and the advantages of a public limited company constitute a private company.
Ease in Share Transferability: Allocation as well as redistribution of shares to investors or other directors is convenient.
Simplified Dissolution Process: Lucid dissolution or winding-up procedure as private limited companies benefit from a more straightforward winding-up or dissolution procedure compared to other business structures.
Greater Confidentiality: Confidentiality is maintained as private companies are not mandatorily required to reveal financial results to the general public; however, financials are filed with the MCA and can be accessed on payment of the requisite fees. This also eliminates the pressure of meeting the expectations of both shareholders and analysts.
Detailed Process of Incorporation
Here is the detailed incorporation process required for different cases and categories.
1. Incorporation in case of up to 7 promoters or subscribers
If you are going to form a company up to 7 promoters or subscribers, then as per Rule 38 of Companies (Incorporation) Rules, 2014, a company can be incorporated through a simplified proforma for incorporating a company electronically, plus (SPICE+).
Obtain Digital Signature Certificate (DSC): A DSC is a mandatory electronic signature required by all subscribers to digitally sign the company’s incorporation documents along with the prescribed fee. Generally, DSC is allotted in 1-2 days after submission of documents. DSC is compulsory for all subscribers to witness the Memorandum and Articles of Association
Apply for Director Identification Number (DIN):A DIN is a unique identification number issued to individuals intending to become company directors, applied through the SPICe+ form. Application in SPICE+ form shall be made online, and a DIN of the Person intending to become a director of the company shall be generated. A DIN of a maximum of 3 directors can be applied for in SPICE+
Furnish details to the Registrar of Companies (ROC) in form SPICE+: It shall include the following particulars of the promoters and directors.
Documents Required for an Indian Director
Below is the list of documents and information required for company incorporation:
Self-attested copy of PAN card
Self-attested copy of Government-issued ID proof – Voter ID Card / Passport / Driving Licens
Self-attested copy of Government-issued address proof – Bank Statement / Utility Bill not older than 2 months
Indian passport-size photographs
DSC form
Information Required for Company Set Up
Proposed names of the company in order of preference (maximum six names) for the reservation of the name. It is suggested that you choose a unique name for your company.
Main objects of the company – Main objects means the main business activity that is proposed to be carried out by the new company. This will form a part of the company’s documents.
Details of authorized capital and paid-up capital
Communication address for the Indian company
Documents Required for Registered Address
A correspondence address needs to be provided within the same state and ROC until any address becomes the registered office address. The corresponding address is essentially the official address where all the formal amil and documents are sent, which may or may not be the same as where the company’s day-to-day business activities are conducted.
A company must have a registered office within the state it is incorporated in to receive official correspondence and to allow for the inspection of company records.
Here is the list of necessary documents required for registered address:
Conveyance/ Lease deed/ Rent Agreement, etc., in the name of the company after the name is approved by MCA.
Copy of utility bills (electricity, gas, telephone that are not older than two months.
No Objection Certificate from the owner that the company is permitted to use this address as the registered office address
Documents Required in case of a Foreigner being a Director / Shareholder
Copy of Passport
Copy of Government-issued address proof – Driver’s License / Bank Statement / Utility Bill not older than 2 months
Indian passport-size photographs
Documents Required for a Foreign company in case the Foreign Company is a Shareholder
Copy of Certificate of Incorporation of the foreign entity
Copy of address proof for the foreign company – Latest bank statement/utility bill (not older than 2 months)
Copy of board resolution on the letterhead of the foreign entity for incorporating a subsidiary in India and authorizing investment in shares of an Indian company through an authorized representative.
Attestation of Documents / MOA / AOA Signed by Foreign Nationals Residing Outside India
In a country in any part of the Commonwealth, his documents shall be notarized by a Notary (Public) in that part of the Commonwealth
In a country which is a party to the Hague Apostille Convention, 1961, his documents shall be notarized before the Notary (Public) of the country of his origin and be duly apostilled in accordance with the said Hague Convention
In a country outside the Commonwealth and which is not a party to the Hague Apostille Convention, 1961, his documents shall be notarized before the Notary (Public) of such country, and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer
Visited India and intended to incorporate a company; in such a case, the incorporation shall be allowed if he/she has a valid Business Visa; however, in case a person is of Indian Origin or Overseas Citizen of India, the requirement of a business Visa shall not be applicable
Other Documents Required for the Incorporation Process, as per the type of Company:
INC-9 declaration by first subscribers and directors
Consent to act as a director in the Form DIR-2 declaration from the first Directors
Subscriber sheet to MOA & AOA
Name Approval
Apply the name of the company electronically by using the services of Spice+ (Part A) on the Ministry of Corporate Affairs (MCA) portal (maximum two names can be given)
Two companies cannot be incorporated with the same name or with a name that resembles each other, nor can they resemble any registered trademark
If the name is available, ROC shall allow the name
The name shall be available for 20 days from the date of approval, within 20 days of the company being incorporated, failing which the name shall expire
If the name is not available, then it shall be rejected, and the applicant shall resubmit the form without any additional fees within the time prescribed
Only one re-submission is allowed
Submit Form
SPICE+: It is a simplified pro-forma for incorporating a company electronically, which serves the following purposes with the benefit of a single application:
Application for allotment of DIN
Reservation of the company name
Incorporation of a new company
Application for permanent account number (PAN) and temporary account number (TAN)
Applying for ESI and EPFO registration
Applying GSTIN
Getting a bank account opened
Professional Tax for companies to be registered in the state of Maharashtra
Signing of Electronic Memorandum of Association (E-MOA) and Electronic Articles of Association (E-AOA):
Along with SPICE+, e-MOA, and e-AOA shall also be filed.
MOA is a supreme document for the company. It’s a charter of the company, which defines its constitution, whereas the AOA contains the internal rules and regulations of the company.
E-MOA and E-AOA to be digitally signed by all the promoters/ subscribers with their digital signatures by mentioning all their particulars.
Signatures of subscribers to be attested by witnesses, who shall also mention their details like name, address, occupation, professional qualification, etc.
PAN and TAN Application
The company’s PAN and TAN are applied using the form SPICE+. The application (SPICe+) for the incorporation of a company shall be accompanied by a linked e-form AGILE-PRO.
Though it is optional to apply for GSTIN, applying for Establishment code as issued by EPFO, Employer Code as issued by ESIC, Profession Tax registration, and opening of bank account are mandatory at the time of incorporating a company by filing the form along with SPICe+ form.
Submission of forms and payment of fee to ROC: All the forms (SPICE+, e-MOA, e-AOA, and Agile Pro) shall be filed with ROC along with fees as prescribed in the rules.
Issuance of Certificate of Incorporation: If the ROC is satisfied that all the requirements have been complied with by the company, it will register the company and issue a Certificate of Incorporation for the company.
2. Incorporation of a Company with More than 7 Promoters or Subscribers
Follow a similar procedure when incorporating a company with more than seven promoters, as with the incorporation of a company with up to seven promoters (as explained above), except:
Memorandum and Articles of Association to be filed physically and to be duly signed by all the promoters manually, by furnishing the particulars in their own handwriting.
If an existing company is the promoter of the company, then that company shall authorize a person to sign the MOA and AOA on its behalf. The authorized Person shall not be the promoter of the company at the same time.
Conclusion
Earlier, the incorporation of a company required a lot of paperwork and physical visits to government offices. Now, the process has become simpler with digital platforms like SPICe+, though ensuring compliance and accuracy at every stage is still essential. But if you are still not aware of the digital revolution of easily accessible and quick setup, then you can definitely consult a professional.
At Mercurius, we assist entrepreneurs and businesses with end-to-end company incorporation support from documentation, name approval, and filing to post-incorporation compliance, ensuring a seamless and hassle-free registration process and if you also want to know more about your company incorporation, you can contact us for one-time free consultation.
Connect with us +91 966 777 9615
