Incorporating a private company in India can seem like a daunting task due to the multitude of legal processes and forms involved. However, with a comprehensive understanding of the steps and their importance, it becomes manageable. Incorporation gives your company a legal identity, protects your personal assets, and boosts your credibility among customers and investors. This article provides a detailed walkthrough of the incorporation process of a private company in India.
Understanding Key Terms
Before we delve into the process, let’s clarify some crucial terms:
- Private Company: As per Section 2(68) of the Indian Companies Act, 2013, a private company is a company that restricts the right to transfer its shares, has a maximum of 200 members, and doesn’t invite the public to subscribe to its securities.
- Digital Signature Certificate (DSC): A digital equivalent of a physical or paper certificate, DSC is used to sign documents digitally. It provides an additional layer of security and authenticity to documents.
- Director Identification Number (DIN): Section 153 of the Companies Act, 2013, mandates that every individual intending to be appointed as a director should have a DIN. It’s a unique identification number assigned to a director.
- Memorandum of Association (MoA): The MoA is the company’s charter that defines the scope of its activities and its relationship with the shareholders.
- Articles of Association (AoA): The AoA contains the regulations for the company’s management.
Step 1: Obtain DSC and DIN
The first step in the incorporation of a private company involves obtaining the Digital Signature Certificate (DSC) and the Director Identification Number (DIN). Both of these are fundamental prerequisites in the digital filing process.
The DSC is a digital equivalent of physical or paper certificates, used to establish the identity of the sender while filing documents electronically. It is obtained from a government-recognized Certifying Authority (CA). There are three types of DSC – Class 1, Class 2, and Class 3. For incorporating a company, you need Class 2 or Class 3 DSC. The process includes providing proof of identity and address, and the CA verifies the data before issuing the DSC.
Next, the Director Identification Number (DIN) is a unique identification number for an existing or prospective director of a company. As per Section 153 of the Companies Act, 2013, it is compulsory for every individual intending to be appointed as a director of a company to apply for DIN. The application is made in Form DIR-3 along with a declaration that he/she is not disqualified under Section 164(2). The central government allots the DIN within a month of application.
Step 2: Name Approval
The second step is the approval of the company name. It is a significant part of the company incorporation process as it identifies the nature and type of the company. Under Rule 9 of the Companies (Incorporation) Rules, 2014, the name of the company should not be identical or resemble an existing company or LLP name.
To reserve a name, you must file the ‘Reserve Unique Name’ (RUN) form with the Ministry of Corporate Affairs (MCA). The RUN form allows you to propose two names in the order of preference. The Registrar of Companies (RoC) will confirm the name’s availability and approve it if it is unique and adheres to the naming standards.
Step 3: Drafting MoA and AoA
The Memorandum of Association (MoA) and the Articles of Association (AoA) are the charter documents of a company. The MoA, according to Section 4 of the Companies Act, outlines the company’s objectives and its scope of activity. It includes the company’s name, its state of registration, the liability of its members, and its share capital.
The AoA, as per Section 5, consists of the rules and regulations governing the company’s internal management. It includes details on shares and capital, the company’s directors, general meetings, and other administrative rules. It’s important to note that the AoA should not contradict the MoA or the Companies Act.
Step 4: Filing of Incorporation Forms
After drafting the MoA and AoA, the next step is to file the incorporation forms with the RoC. The e-forms to be filed are Form INC-32 (Simplified Proforma for Incorporating Company Electronically – SPICe), Form INC-33 (eMoA), and Form INC-34 (eAoA).
Form INC-32 is a consolidated form for the reservation of name, incorporation of a new company, and/or application for DIN. It simplifies the process by combining three steps into one. Form INC-33 is the electronic version of the MoA, and Form INC-34 is the electronic version of the AoA.
What are each of these company incorporation forms?
Form INC-32 (SPICe)
Form INC-32 or the Simplified Proforma for Incorporating Company Electronically (SPICe), as the name suggests, is a simplified and consolidated form that streamlines the process of company incorporation. Introduced by the Ministry of Corporate Affairs (MCA), it is a part of the government’s initiative to simplify the business incorporation process.
The SPICe form serves three key purposes:
- Reservation of a company name: This is an optional feature. If you have already applied for and obtained name approval via the ‘RUN’ service, you can bypass this step. Otherwise, you can propose names for the new company in this form.
- Application for Director Identification Number (DIN): Form INC-32 allows up to three directors who do not have a DIN to apply for one.
- Incorporation of a new company: This is the primary purpose of the form, facilitating the incorporation of a new company.
The form requires various details, including the company’s proposed name, its business activities, registered office address, and information about its proposed directors and subscribers. The form also asks for information about the share capital of the company and details of the number of shares subscribed by each subscriber.
Form INC-33 (eMoA)
Form INC-33 is the electronic version of the Memorandum of Association (MoA). The MoA is a fundamental document for the incorporation of a company. It contains the company’s constitution and the scope of its powers. It defines the relationship of the company with the outside world and outlines the company’s objectives.
In Form INC-33, you’ll be required to fill in various details such as the company’s name, the state in which the company’s registered office is to be located, the objectives of the company, liability of its members, and the share capital of the company. The subscribers, i.e., the initial shareholders of the company, need to affix their digital signatures on this form.
Form INC-34 (eAoA)
Form INC-34 is the electronic version of the Articles of Association (AoA). The AoA is a document that lays down the rules and regulations for the company’s management. It outlines the internal affairs of the company and the conduct of its business.
The eAoA form is pre-drafted. You have to select applicable and relevant articles, and fill in specific details such as the number of members, rules for meetings, the number of directors and their powers, the rights of shareholders, and details about the audit of the company’s accounts. It is a flexible document that can be amended later as per the company’s requirements. The subscribers need to digitally sign this form as well.
These three forms, INC-32, INC-33, and INC-34, have made the incorporation process easier and faster, allowing new businesses to hit the ground running.
Step 5: Certificate of Incorporation
Upon successful verification of the documents submitted, the RoC issues a Certificate of Incorporation as per Section 7(2) of the Companies Act, 2013.
This certificate is a crucial document that signifies the formation of the company. It contains the Corporate Identity Number (CIN), which is a unique identification code for each company. It also mentions the date of incorporation, which is the date from when the company is legally recognized. The certificate is proof of the company’s existence and that it has complied with all statutory requirements of incorporation. Once received, the company can commence its business operations.
Before a company can start its business or exercise any borrowing powers, it must obtain a certificate of commencement of business. As per Section 10A of the Companies Act, 2013, the company must file a declaration in Form INC-20A, confirming that every subscriber to the Memorandum has paid the agreed value of the shares.
Filing Form INC-20A is a critical step in the incorporation process. This form must be filed within 180 days of the date of incorporation of the company. Along with the form, the company is required to attach the Subscribers proof of payment for the value of shares.
Upon verifying the details provided in Form INC-20A, the Registrar of Companies (RoC) will certify that the company is fit to commence its business activities. This certification provides the green light for the company to begin its operational phase.
Step 6: Commencement of Business
Finally, you need to file Form INC-20A, a declaration for the commencement of business as per Section 10A of the Companies Act. This is to verify that every subscriber to the MoA has paid the agreed value of the shares.
Wrapping it up
Incorporating a private company in India is a well-structured process. Although it involves multiple steps and documentation, understanding each step’s relevance and the associated requirements can make the process smoother. From obtaining DSC and DIN, reserving a unique company name, drafting the MoA and AoA, filing incorporation forms, obtaining the certificate of incorporation, to commencing the business activities – each step is crucial in its own right.
While it might seem overwhelming initially, a methodical approach to each step can ensure successful completion. It’s also important to stay updated with the rules and regulations as per the Companies Act, 2013, as the legal landscape can often change. The process of incorporation not only gives your business a legal standing but also enhances its credibility among various stakeholders, including customers, investors, and regulatory bodies. By following the prescribed steps accurately, you can ensure a smooth start for your private company in India.