Incorporation of a Company and the Role of ROC under Companies Act, 2013
Abstract
Starting a new business requires numerous legal tasks In India and every business must register themselves as part of mandatory legal compliance. Company incorporation gives your business a legal recognition and protection, allowing you to operate as a separate entity and picking a right type of business structure is very crucial as the right type of business structure will allow you to operate effectively. This research paper aims to highlight the types of business structures available to choose, the essentials and step by step guide on how to incorporate a company with the ROC to ensure an effective and successful incorporation.
INTRODUCTION:
Often, Businessman struggle to understand the real benefit of one business structure over another due to lack of adequate insights and professional expertise available. Should it be a sole proprietorship, or a One Person Company, a public company, a private company, a partnership, a (Non-Profit organization -Section 8) or an LLP, a trust or a society or a company with charitable objects? There are several forms of companies to choose from subject to the needs of the business organization, the nature of the activities, persons involved in the decision making, taxation aspects, accounting aspects etc.
In India, the most common and dominant type is a Private Limited Company. A company refers to a legal entity consists of a group of individuals who conduct business to gain profits and upon being legally incorporated, has a distinct identity separate from its promoters, members, directors [1].
TYPES AND COMPARISION OF DIFFERENT BUSINESS STRUCUTRES IN INDIA
- Sole Proprietorship
- Partnership
- Limited Liability Partnership
- Private limited Company
- Public limited company
- One Person Company
- Section -8 Company
- Non-governmental organization (NGO)
- Sole Proprietorship :
A sole proprietorship is an enterprise that is wholly controlled by one person. Many entrepreneurs start small businesses and continue as sole proprietors. Such an establishment and its owner are not considered as separate entities. There is no formal registration required to start a business in India under sole proprietorship.
The proprietor must bear all the responsibilities and it is easy to register and the entire profits made by the sole proprietorship will be in the hands of the owner. There are no separate tax returns. [2]
It is cost effective as this kind of business structure barely involves any cost however, conducting business in a separate area would require registrations like shops and establishment registrations.
The decisions are solely dependent on the owner/sole proprietor there it is flexible and easy to take decisions.
The sole proprietor is capable of ensuring in maintaining one-on –one relationship with customer.
- PARTNERSHIP
In this type of business structure, two or more people come together to work and earn profits. The partners are responsible for all liabilities . When it comes to registration of a partnership it is not mandatory, but suitable to get registered.
It is easier to raise funds for Partnership as financial institutions consider them safer than sole proprietorship. There is a sense of trust when it comes to partnership, all partners act collectively or act on behalf.
There is a shared responsibility among them.
- LIMITED LIABILITY PARTNERSHIP
A limited liability Partnership (LLP) is incorporated under Limited liability partnership Act, 2009. Partners are not burdened with unlimited liabilities caused by the business. A limited liability Partnership and its partners are considered as separate legal entity and no partner is liable on the account of independent actions of other partners, thus independent partners are safe from joint liabilities upon other partner’s misconduct.
There can be two or more partners in this type of legal structure, there is no limitation of numbers of business owners.
The cost of registration is less as compared to private limited company and public limited company.
The compliance requirement is less as they only require to submit two statements therefore, compliance requirement is less compared to private limited company
- Private limited Company
A Private limited company is defined a private company as a company with minimum-paid up share capital as per section 2 (68) of companies Act, 2013.
It restricts the right to transfer its shares and prohibits any invitation to the public to subscribe for any securities of the company.
A private limited company is said to be a separate legal entity. An entity means something which has a separate legal existence, therefore the company can sue and it can be sued under its name.
A private limited company enjoys more privilege of getting more funds than LLP’s. Banks invite private limited companies more than LLP’s .
The company’s existence continues and remains unaffected by the death of any member
A person in a private limited company can be a employee/shareholder/director at the same time.
- Public Listed Companies :
A public listed company if formed by minimum 7 members with a minimum paid up-capital.
The liability of the shareholders is limited to their stake only. The business can be sued by not involving any shareholders.
There is a minimum requirement of seven shareholders can can exceed any limitless numbers as its share capital can occupy.
The lifespan of the public company is not effected by the death of any member or shareholder.
Public limited company can relish an increased ability to raise capital through the stock market by issuing debentures and bonds from the public.
- One Person Company:
“One Person Company “means a company that has only one person as a member. This is a recent invention. All the shares can be owned by one person but there must be a nominee for the sole member to register this form of business.
- Only the owner is entitled to make business decisions and control the business without complying with the long processes and measures as adopted by few other companies.
- Through this structure, an individual can take a higher amount of risk in business without causing damage to personal assets.
- Section-8 Company :
An individual or an association of individuals are eligible to be registered as section 8 company if it has the mentioned objectives:The objectives must be confirmed to the satisfaction of the central government.
- When the company intends to promote science, commerce, education, , art , sports , research, religion, charity, social welfare protection of the environment or alike other objectives.
- Non-Governmental Organization (NGO):
Non-governmental organizations or an NGO are the organizations which are formed with an aim to benefit the society at large especially for the underprivileged people. NGO’s could be formed in various forms of organizations and every form of organization has a different kind of requirements for its formation. NGO’s can be in the form of trust registered under trust act, 1882, society registered under societies registration Act, 1860 section 8 companies registered under companies act, 2013.
PROCEDURE FOR INCORPORATION OF A COMPANY THROUGH Spice Form:
1) Selection of name for the proposed company Reservation under RUN or Spice:
-Apply for the name availability of the proposed company to Registrar of companies (ROC) within the Jurisdiction: For this, one has to fill form INC-1 and submit online along with requisite fee with ROC .
– The name should be unique and no other company (Public or Private) should be using that name or having any trademark of the same.
2) Apply for directors Identification Numbers and digital Signatures, if does not have
Digital Signature certificate (DSC) are the digital equivalent ( i.e; electronic format) of physical or paper certificates Certificates serve as proof of identity of an individual for a certain purpose. A digital certificate can be presented electronically To prove your identity, to access information or services on the electronically to sign documents digitally. One can get DSC registered by signing MCA-21-E-Forms digitally.
A licensed Certifying Authority (CA) issues the digital signature. Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate.
3) DIN -Director Identification Number is a unique identification number alloted to the existing director of the
Company or intending to be appointment as director of a company according to section 152 (3), Section -153 & 154 of the companies, 2013. It is only after the DIN is approved, the incorporation documents can be filed with the registrar form No-DIR-3. However, the name approval can be obtained prior to approval of DIN. It takes about 7 days for getting the DIN approved, provided all proper documents are furnished. Fees to be paid for the allotment of DIN is Rs.500.
Step 3: Registration on the MCA Portal:
To apply for company registration, The SPICe+ form need t filled out and submit on the MCA Ministry of corporate affairs portal. Fill out the SPICe+ form with all the documents and submit it .After registration, the director can login and can obtain access to the MCA Portal services which includes filing e-forms and view public documents.
The company must also reserve its name by submitting two proposed names in the Part-A of the SPICe+ form . The reservation of name is essential nif the company name is similar to the name of an existing / registered company/LLP , trademark or it contains words prohibited under the companies (Incorporation rules) 2014 , the SPICe+ form will get rejected.
If SPICe+ form gets rejected due to non-approval of the company name , the applicant must re-apply another SPICe+ form for the reservation of a new name by paying the prescribed fee .
However, after the approval of the name filed in Part –A of SPICe+ form, it will be reserved for 20 days within which the cmany must file part-b of the SPICe+ form and submit, attach documents, attach the DSC , check the form and submit it
4). Drafting of Memorandum of Associations and Articles of Association:
The MoA is the constitution of the company which must contain all the fundamental information of the company. MoA defines the relationship of the company with its shareholders
7. Obtaining certificate of Incorporation:
Every company in the country requires the approval of the ROC to come into existence. The ROC provides an incorporation certificate which is conclusive evidence of the existence of any company. A company, once incorporated, cannot cease unless the name of the company is struck off from the register of companies.
The certificate of incorporation is issued with PAN and TAN as allotted by the income tax department. An electronic mail with certificate of incorporation of company as an attachment along with PAN and TAN will also be sent to the applicant.
CONCLUSION;
Registration of a company involves lot of processes, so one should decide the structure of business and incorporation of a company by ROC ensures proper legal structure of the business. Thus, by understanding the checklist of company incorporation and comparison of different types of business structures, an aspiring entrepreneur can find the registration process clear and effective. Approval of the name, filling up the SPICe+ form, Obtaining DIN and Digital signature certificate are very crucial steps[3]. Overall, This simplified registration process will help individuals establish their businesses.
Reference:
https://www.setindiabiz.com/learning/checklist-for-company-registration
https://www.ahlawatassociates.com/blog/types-of-business-structures-in-india/
https://cleartax.in/s/company-registration
Registrar of Companies (ROC) is an office managed by the Ministry of Corporate Affairs (MCA), that deals with the administration of companies and Limited Liability Partnerships across the country.
[1]. Bhumika Indulia., compliance-checklist-for-incorporation-of-companies-with-charitable-objects/Compliance Checklist for Incorporation of Companies with Charitable Objects., June 5, 2019…
[2] A&A, Types of Business Structures in India, blog
[3] May 26th, 2023, Company Registration Online – How to Register a Private Limited company in India
