How to Incorporate a Company in India

The Companies Act, 2013 governs the procedures for incorporating a company in India. Incorporating a company is a preferred form of business because it has several advantages such a limited liability and perpetual succession, to name a few.

The incorporation process begins with the conceptualization of the idea, to incorporating a legal entity and finally commencing the business activities. Here are the broad steps involved.

Steps for forming a Company in India

A company can be incorporated as either public limited or private limited. While the steps are more or less the same, incorporating a public company would require meeting a few more compliance mandates.

According to the Companies Act, private limited companies can commence business activates immediately after receiving the Certificate of Incorporation. However, a public company has to undertake the Capital Subscription to raise capital from the public (Initial Public Offering). A public company has to issue prospectus to invite the public to purchase the company’s shares and must also meet the minimum requirements for the subscription before it can receive the Certificate of Commencement of Business. 

Steps for Incorporation of Company in India

Step 1: Promotion of a Company

The first step in the formation of the company is to promote the company. This essentially means conceiving a business idea and taking the necessary steps to form the company and giving a practical connotation to the business plan – Such as feasibility of the business idea, setting up the business facility and company registration. 

The promoter of a Company

A promoter of the company is anyone who discovers the business opportunity and takes the necessary business and statutory steps to incorporate the company. There can be one or more promoters of the company and the promoters of the company are often the first shareholders of the company as well.

Functions of a Promoter

The promoters of a company perform various functions to set up a business and bring the company into existence.

1. Identification of business opportunity for the formation of the company with respect to producing products or providing services.
2. Feasibility studies of the business idea such as technical, financial and economical feasibility
3. Getting the name of the company reserved and approved through the RUN web service
4. Appointment of professionals such as bankers, auditors, and directors of the company
5. Preparation of the documents for incorporation such as:

• Memorandum of Association (e-MoA)
• Articles of Association (e-AoA)
• Directors Consent Form (Form DIR – 2)
• Affidavit and declaration by the first subscribers and directors of the company (Form INC – 9)
• Company registration forms (SPICe-32)
• Payment of incorporation fees

Step 2: Incorporation of a Company

Once the necessary documents are prepared, the promoters submit and file the application for incorporation with the Registrar of Companies (Roc) in the state where the company’s register office would be set up. The Application form SPICe-32 will be accompanied by the above mentioned supporting documents.

Approval of the Registrar

The RoC will examine the documents and check if all the statutory requirements for the formation of the company have been met.

Once the Registrar is satisfied with the compliance of all the formalities, the Certificate of Incorporation will be issued, signifying the birth of the company. A CIN (Corporate Identity Number) will be allotted to the company.

Effect of Incorporation

The Certificate of Incorporation is the legal proof and evidence of the birth of the company. The company can validate contracts and agreements to carry forward its business activities.

With the Certification of Incorporation, the birth and validity of the company existence cannot be questioned; even if the company was set up with unlawful objectives. In such a situation, a case can be registered in the Court of Law against the company that will ultimately result in its strike-off or winding-up.

Once the Certificate of Incorporation has been obtained, a private limited company can immediately commence business activities. However, a public company will have to go through the process of capital subscription to raise the necessary capital.

Step 3: Capital Subscription

A public company raises capital funds by issuing shares and debentures of the company to the public. Here is a brief look at the various steps required to raise the funds from the public. The first issue of the company to raise funds from the public is called Initial Public Offering (IPO).

• SEBI Approval: SEBI (Securities and Exchange Board of India) is the regulatory authority for the Securities market in India. According to the guidelines issued by the SEBI, a public company will have to make certain disclosures to ensure investor protection. The disclosures will be made to the SEBI to secure the necessary approval to raise funds from the public.
• Filling of Prospectus: A prospectus of a company is a document that functions as an advertisement to the public inviting them for the equity subscription. The public will typically use the information contained in the prospectus to make a decision about investing in the company. The prospectus is also to be filed with the Registrar of Companies. If the company plans to raise the capital from a smaller group of people, then, a Statement in Lieu of Prospectus is to be filed with the Registrar three days before making the share allotment.
• Appointment of Brokers and Underwriters: The Company needs to appoint bankers to receive the application money of the shares. Brokers play an active role in bringing in public investment for a particular brokerage. Underwrites undertake to subscribe to the shares to meet the minimum subscription requirements if the public doesn’t purchase the shares of the company
• Minimum Subscription: The Companies Act has set a minimum subscription limit to ensure that the company doesn’t commence business with a paucity of funds. The Act mandates that at least 90% of the issue has to be subscribed by the public. If this isn’t met, the share allotment cannot be made, and the application money should be returned.  
• Application to Stock Exchange: The Company must make an application to any one of the national stock exchanges to list the company’s shares and deal with the company’s shares and debentures. The stock exchange will have to grant is approval within 10 weeks of the closure of the capital subscription list. If the approval is not secured, the allotment becomes void, and the company will have to return the money to the public.
• Allotment of Shares: Once the application money is received, the shares are allotted to the applicant. A letter is issued to the allottee on the successful allotment. Once the shares have been allotted, any excess application money is to be returned to the applicant or adjusted against the allotment money due. The Return of Allotment is to be filed with the Registrar of Companies within a period of 30 days from the closure of allotment and is to be signed the director of the Company or the Company Secretary.

Step 4: Commencement of Business

A private company can commence business immediately after securing the Certificate of Incorporation, however, a public company must first secure a Certificate of Commencement of Business.

Upon successful allotment of shares and capital subscription, the public company will have to make an application the RoC for the Certificate of Commencement of Business. The following documents will need to be filed with the application:

• A declaration that the minimum subscription has been met, and the all the shares subscribed for has been allotted.
• A declaration that directors of the company have subscribed to the shares in cash (not kind), and the proportion of allotment is the same as other directors.
• A declaration that the excess application money / or un-allotted application money has been returned to the applicant.
• For private placement of shares, a Statement in lieu of prospectus is to also be filed.

Once the Registrar is satisfied with the documents, the Certificate of Commencement of Business is issued and the company can commence business operations.