Company incorporation in India: Benefits of registering company
Chiefly, India is a major place where the start-ups and the entrepreneurs are growing rapidly. Company incorporation is not an easier task. Choosing your business is easy, but you have to register your company under the right sector. The registered company gains more advantages compared to other companies. Majority of the people desire to incorporate a registered company having separate legal entity in their eyes of laws.
Moreover, company refers to the mode of doing business. Mostly, it depends on what are your expansion plans, future team size, funding requirements and business vision. There are several options like private limited company, public limited, one Person Company and limited liability partnership; the most preferred option will be private limited company. This is due to enormous benefits associated with the business structure.
Company incorporation and commencement steps:
First of all, formation of a company is a long and complicated process. The foremost step involved in forming the company is company incorporation. After that, there are several other procedures followed by the company before the commencement of the business. The company formation is an early and initial task. It involves certain legal formalities and procedures to be done at the initial stages. The authorities have the special powers and system that are to be followed by each and every business organisation for the business commencement.
For instance, when a human being takes birth, his body parts are the immense element which is being formed before taking the birth. Similarly, when a company is formed, before that it has its several aspects which have to be built after which the company is taken into an account to commence its business:
- Promotion of a company
- Registration of a company
- Certificate of incorporation
- Commencement of business
Promotion of a company:
The process of business promotions comes when someone comes up with the good idea and that idea is converted into action. (i.e.) the formation of the firm and commencement of the business. It is the effort thrown by the members of the company put to make the company.
A successful promoter is the creator of wealth. The person who is related to the promotion of a particular business or an enterprise is known to be a promoter. For example, Dhirubhai Ambani is the promoter of Reliance Industries. He created the idea of starting a business and takes all the measures required for bringing the enterprise into the existence. Moreover, the promoter finds out the way to generate the money, search business idea, arranges for finance, gather resource and establish a going concern. The company law does not give any legal status to promoters. He stands in fiduciary position.
There are different types of the promoter, occasional promoters, company promoter, financial promoter, entrepreneurs, lawyers, and engineers etc. They all play different roles during the company incorporation, and all of them only hold a fiduciary position until such company is incorporated.
Once the promoters have decided to launch a company next step is to select a name for the company and get it registered with the registrar of companies of the state in which the registered office of the company is to be situated. An application with three names, in the order of their priority, is filed with the registrar to get the name approved.
Registration of company :
Consequently, the company registration is nothing but giving birth or existence to a company. A company is properly effectively when it is registered under the companies act. There are certain procedure for the registering the company, it should be followed by each and every organisation. Meanwhile, it involves the following documents and procedures,
Memorandum of Association:
It is signed by minimum member that is 7 persons for the public company and 2 in case of private company. It should be duly stamped.
Articles of Association:
The document is signed by all persons who have signed the memorandum of association.
List of directors:
A list of directors with their names, address, and occupation is prepared and filed with the registrar of the companies.
Written consent of the directors:
A written consent of the directors that they had agreed to act as directors has to be filed with the registrar of the company along with a written approval to the effect that they will take the qualification shares and will pay for them.
Notice of the address of the registrar office:
Consequently, it is also necessary to file the notice of the address of the company’s registered office at the time of incorporation. It is to be provided within 30 days after the date of incorporation.
Statutory declaration:
A statutory declaration mentioning that the requisites of the act and the rules there-under have been compiled. It must be signed by an advocate of the Supreme Court entitled to appear before a high court or a practicing chartered accountant in India, who engages in the company incorporation or by a person indicated in the article as a director, managing director, secretary or manager of a company. Moreover, it is also to be filed with the registrar of the company.
Company Incorporation certificate
The registration of the memorandum of the association, the article of association and other documents are filed with the registrar of the company. After getting fulfilled with the application & documents submitted, Registrar will issue the Certificate of incorporation’. A certificate of incorporation is the ultimate proof for the existence of a company.
Certificate of Commencement of Business
As soon as a private company gets the certification of incorporation it can start its business. Once the certificate of incorporation is received by the company, a public company issues a prospectus for inviting a public to subscribe to its share capital. It fixes the minimum subscription in the prospectus. Then it is required to sell the minimum number of shares mentioned in the prospectus.
After completing the sale of the required number of shares, the certificate is sent to the registrar along with the letter from the bank stating that all the money is received. The registrar then inspects the documents. If all the legal formalities are done then the registrar issues a certificate known as ‘certificate of commencement of businesses. This is the conclusive evidence for the commencement of business for the public.
Company incorporation – Types:
The different types of company formation are: Private limited company, public limited company, one Person Company, Nidhi Company, proprietorship registration, section 8 company, limited liability partnership, Partnership firm registration, non-banking finance companies etc.
Private limited company registration:
Private limited company registration offers multiple benefits such as ease of formation, limited liability, freely transfer of shares, easy to raise funds, etc. Private Limited Company is nothing but a privately held business with a minimum of 2 and maximum of 200 members.
Factors that are affecting the cost of private limited company registration
First of all, the procedure of private limited company is almost same in every and each state. However, the cost involved in private limited company registration is different compared to other company registration. Moreover, there are several other factors that bear the cost of private limited company registration. The Certain factors that the cost of company registration will depend-
- Authorized Share Capital of the company
- Number of Directors in the company
- Stamp Duty of the State where the company is proposed to be registered
- Charges are taken by professionals like Chartered accountants or Lawyers.
Public limited company registration:
A public company has to follow much more consequences compared to a Private limited company. It can deal in both secured and unsecured debts. A public limited company allows you to trade in the market and issue shares, debentures and accept deposits. Similarly, a public limited company registration is always beneficial because a public limited company is preferred to provide big financial loans as compared to Limited liability partnership and Firms.
However, at least it must have at least minimum of 3 directors and 7 members or shareholders; there is no upper limit for the maximum number of the shareholder. The public limited companies can be started with an initial capital of 1lakh. Every Public company need to conduct board and general meetings within the prescribed time as per Companies Act, 2013. Every Public company is required to get their accounts audited annually as per the provisions of the Companies Act, 2013. Articles of association are the charter for the company that defines its scope of operations.
One person company registration:
Moreover, Section 2(62) of Companies Act defines a one person company as a company which has only one person as its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association. So, an OPC is a company that has only one shareholder as its member.
Such companies are generally created when there is only one promoter for the business. Entrepreneurs whose businesses lie in early stages prefer to start OPCs instead of sole proprietorship business because of the several advantages that OPCs offer. Moreover, only natural persons can become members of OPCs. This does not occur in the case of companies where the companies themselves own shares and be members.
Section 8 company registration:
The primary objective of the section 8 companies are working for the development of the society, protection of the earth and environment, working in the field of art, commerce, literature, sports, protection of living creatures, research, and development, etc. without earning any profit. In other words, section-8 Company is a non-profit organization whose main aim is to contribute its effort for the development and betterment of the society, but under companies act this non-profit organization is known as section-8 Company.
There should be minimum two shareholders and two Directors (Directors and shareholders can be the same person); At least one of the Director should be the resident in India. There is no minimum capital for section 8 companies.
Limited liability partnership:
Further more, the Limited liability partnership is the good choice for those who are involving in the business of consultancy. LLP have little compliance to follow as compared to other companies. Under Indian Partnership Act, 1932 the registration of partnership firm, but if any person wants to run LLP, and then he shall have to take a certificate of registration from the Registrar and register the LLP agreement. Consequently, all the details of the business such as profit & loss sharing ratio amount of capital invested should be mentioned in the LLP agreement.
Non-banking finance companies:
In essence, NBFCs or Non-banking financial company as it is commonly known as in India is the financial institution that provides the banking services without any bank licenses. Moreover, they are allowed to perform some banking activities but they do not require any pre-banking licenses for such activity. The NBFCs in India runs under the companies’ act which came into place in 1956. Services provided by NBFCs include investment, hire purchase, and chit funds.
There are different types of Non-banking Finance companies in India such as loan companies, asset finance companies, and investment companies. The main purpose of the loan companies is to provide loans and advances. Asset finance companies provide the finance the assets of a company like machines, equipment, etc.
Proprietorship registration:
Besides, the proprietorship registration is the good practice for the start of small scale business. Moreover, it does allow the business to scale up and reach maximum growth as the many of the features are missed out in a proprietorship firm. In particular, the features of proprietorship are transfer of shares; limited liability, easy funding process etc. are major things a growing business should possess. A proprietorship firm can be converted into a company by executing a proprietorship takeover agreement.
Choose proprietorship because
- A sole Proprietorship is cheaper as compared to OPC.
- A proprietorship with income of less than Rs. 2 Lakhs per annum is not required to pay income tax.
- Easy to establish with less formalities.
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