HOW TO INCORPORATE A COMPANY IN INDIA

Introduction

The formation and incorporation of a company are extremely similar to the beginning of a human, as it further endures various stages of composition of allure party parts all along the interior stage. Various bases are completed activities to influence an association into life. The process of a plan changing into an association involves differing stages, these crucial stages of the pre-inclusion and composition stages are reviewed painstakingly as under. This item illustrates the functions, charges and burdens of a supporter in addition to providing observations into cases concerning pre-inclusion contracts. This item dwells into the integrated process of Company registration.

Process of incorporation of a business

Steps to Be Taken to Incorporate A New Company

• Select, in order of preference, at least one suitable name up to a maximum of six names, indicative of the main objects of the company.

• Ensure that the name does not resemble the name of any other already registered company and also
• does not violate the provisions of emblems and names (Prevention of Improper Use Act, 1950) by availing the services of checking name availability on the portal.

• Apply to the concerned RoC to ascertain the availability of name in eForm1 A by logging in to the portal. A fee of Rs. 500/- has to be paid alongside and the digital signature of the applicant proposing the company has to be attached in the form. If proposed name is not available, the user has applied for a fresh name on the same application.

• After the name approval the applicant can apply for registration of the new company by filing the required forms (that is Form 1, 18 and 32) within 60 days of name approval

• Arrange for the drafting of the memorandum and articles of association by the solicitors, vetting of the same by RoC and printing of the same.

• Arrange for stamping of the memorandum and articles with the appropriate stamp duty.

• Get the Memorandum and the Articles signed by at least two subscribers in his/her own hand, his/her father’s name, occupation, address and the number of shares subscribed for and witnessed by at least one person.

• Ensure that the Memorandum and Article is dated on a date after the date of stamping.

• Login to the portal and fill the following forms and attach the mandatory documents listed in the e-Form

Declaration of compliance – Form-1

Notice of situation of registered office of the company – Form-18.

Particulars of the Director’s, Manager or Secretary – Form-32.

Submit the following e-Forms after attaching the digital signature, pay the requisite filing and registration fees and send the physical copy of Memorandum and Article of Association to the RoC

• After processing of the Form is complete and Corporate Identity is generated obtain Certificate of Incorporation from RoC.

Additional steps to be taken for formation of a Public Limited Company:

To obtain Commencement of Business Certificate after incorporation of the company the public company has to make following compliance

• File a declaration in eForm 20 and attach the statement in lieu of the prospectus (schedule III) OR

• File a declaration in eForm 19 and attach the prospectus (Schedule II) to it.

• Obtain the Certificate of Commencement of Business.

 

Formalizing a business structure and founders’ agreement

The first thing to start any business is to be clear about the nature and type of the business. Founders will need to incorporate the business as a specific business type – sole proprietorship, private limited, public limited, partnership, limited liability partnership etc. It is very essential to have this clarity at the very beginning as this will be integral to the business’ overall vision and goals, both short term and long term.

Each business type comes with its own set of legal requirements and regulations and businesses should pay special attention to them efore incorporating the business.

Another main question that startup founders endure is asking themselves if they are looking to raise outside capital or start operating their trade. A private restricted guest is the best alternative for startups to raise money as it supports the necessary elasticity to manage outside loans and association stock.

Given how active the startup ecosystem in India is, it is further recommended to draft a Founders Agreement. A Founder’s Agreement is basically a document that designates main analyses about the founding group and implausible story, to a degree, functions, maturities, executive repayment, operational analyses and exit stipulations between remainder of something.

The purpose of specific agreements is to lower the likelihood of surprises when the guest is adequately working. Having a clear Founders Agreement with all basic parts clearly laid out forms a solid base to start and scale a business. The agreement can too be a part of the make use of guide to endure differences arise.

How to apply for a license

Starting is the first step toward success. Setting up a business in India isn’t an easy task, but the country has made significant progress over the years, making it much easier for businesses to get started.

Licences and permits are issued by the government of a certain municipality or state to allow firms to operate. For a specific individual to start a business in India, obtaining a business license is necessary. This is an important and needed document issued by a municipal council. Businesses are allowed to engage in defined activities in a given area. These licences and permits are also used to check on businesses to determine whether or not they are following the law’s standards.

 

Why Do You Need a Business License and Permits?

Business licences and permits have been used in the country for the past forty years, and state governments manage them via municipal corporation laws.

This ensures that no one is harmed in any way due to a commerce or business’s disturbance and health danger. This also ensures that the business or trade is being held in a particular area, in a specific location and that no one is engaging in illegal business activities.

Let us go over the business licence, its uses, and its advantages in more detail.

The process of getting a license differs from one type of industry to the next, depending on a variety of criteria such as the number of workers, the sector, the type of business, the location of the firm, and so on. In this article, we’ll look for some of the most popular company licences and registrations and delve into this more.

 

 

Eligibility to Apply for a Business License

The following are the requirements for applying for a business licence:

List of Business License in India

 

1. Company Registration

The first and foremost requirement for a new business entity in India is company registration. Based on the company structure and the partners involved.

Following are the types of new company registration categories that exist in India:

• Company or Limited Liability Partnership (LLP)

Most enterprises in India are formed as sole proprietorships or general partnerships, with no central government licensing. The Ministry of Corporate Affairs oversees the formation of businesses and limited liability partnerships (LLPs). It is advised that entrepreneurs who aim to operate a business with annual revenue of more than Rs.20 lakhs register as an LLP or a firm.

Once a business or LLP is registered, it will have its legal existence, and the promoters will be protected from liabilities. Moreover, the firm would be easily transferable, and the business would continue to operate forever. As a result, it is best to seek advice from a specialist before starting a business.

The best advantage of being an LLP company is that the business is easily transferable without any legal hassles.

• One Person Company Or OPC

Introduced in 2013, the One-Person Company registration allows a sole-proprietor to register their business and legally carry on his/her business operations.

• Private Limited Company (PLC)

If a company is registered as a Private Limited Company or PLC, then Indian law views the company as a separate legal entity from its founders. Such a company has shareholders, directors, and each entity within the company is regarded as an employee of that company.

Companies and start-ups looking to raise funds and issue ESOPs to employees often register as PLC.

• Public Limited Company (PLC)

In the case of a Public Limited Company, the law regards the corporation as a legal entity composed of a voluntary association of members. The legal liability of every member is limited to the shares they hold. Businesses with high turnover are registered under Public Limited Company, with or without the aim of issuing IPO in the future.

The Ministry of Corporate Affairs does company registration under either of these classes. More information can be availed here.

2. Registration for GST

GST Registration is necessary for all firms and people with annual revenue of more than Rs.20 lakhs across most regions and Rs.10 lakhs in Special Category Provinces. Moreover, despite revenue, anyone delivering goods for intra-state sale is required to register for GST.

In addition to the foregoing criteria, the GST Act contains many other criteria that define the needs for GST registration. Understanding the conditions and obtaining GST registration within one month of starting up a firm is important for all businessmen.

 

3. Registration for Udyog Aadhaar (Udyam or MSME)

Start-ups who want to create and run a small company – micro, small, and medium businesses – can apply for this licence. The eligibility criteria for getting Udyog Aadhaar registration are based on a production concern’s investment in plant and machinery or a services provider’s investment in machinery.

Once a firm has gained a Udyog Aadhaar licence, it is eligible for various government benefits and initiatives to assist small enterprises in India.

 

4. Import Export Code

The DGFT Department requires everyone dealing in importing or exporting goods or services from India to get an Import Export Code. The firm must have a PAN as well as a bank account to receive an Import Export Code.

 

5. A License Under the Shop and Establishment Act

The “Shop and Establishments Act” was adopted to control business practices such as working hours, child labour, salary payment, worker safety, and overall health. State governments offer Shop and Establishment Act licences or registrations, which vary by state. As a result, the relevant State Public authority for getting a Shop and Establishment Act License should be contacted based on the State where the business is located. 

 

6. Gumasta Registration

If you want to start a new business in Maharashtra, you’ll first need a Gumasta licence. To obtain it, you must have the following documents:

7. FSSAI License for Food Business

If you are seeking an answer to how to get a business license for food products, then here is the answer.

Food Safety and Standard Authority of India or FSSAI is a Govt of India undertaking responsible for the safety and standardisation of every food product sold anywhere in India. If you are planning to launch a food business, be it packaged food, restaurant, Cloud kitchen, or any other food business model, you must obtain a license from FSSAI.

There are three types of FSSAI licence:

1. FSSAI Central License
2. FSSAI State Registration
3. FSSAI State License

These are classified based on business turnover:

8. Other Registrations and Licenses

Certain sorts of businesses that deal with or provide insurance, financial services, broadcasting services, defence-related services, and so on would require regulatory permission from agencies like the Reserve Bank of India, IRDAI, etc.

Moreover, a company may be required to get permission from the fire dept, the environmental control board, or the local health service. It all relies on what kind of business you want to start. As a result, before beginning a business, consult with an expert to evaluate and know the legal requirements.

 

How to Apply for a Business License in India?

The process to obtain a business license is determined by the type of the firm, its location, its nature, and its size. To find out what type of business license and permits in India is necessary, call a professional service provider or even a CA, CS, and ICWA agency and ask for advice on securing a business license in India.

Getting professional advice on gaining a business license will help determine whether or not you need that specific business licence. It would also save time and ensure that no errors or mistakes are made throughout obtaining a company licence.

• Pan Card
• Driving License and Voter Id
• Aadhar Card
• Passport
• Rent Agreement and Lease Agreement’
• Electricity Bill, Water Bill, or Telephone Bill
• Chartered Accountant Certificate
• Memorandum of Association and Article of Association.
• Partnership Deed

Certificate of Incorporation

The registration of the memorandum of the association, the article of association and other documents are filed with the registrar. After getting satisfied with the application & documents submitted, the registrar will consider issuing the certificate of incorporation’. A certificate of incorporation is the ultimate proof of the existence of a company.

Effect of the Certificate of Incorporation

1. Certificate of incorporation is the conclusive evidence of the legal existence or presence of the Company as per Section 35 of Companies Act, 1956.
2. Even if there are formal deficiencies in the documents submitted for the incorporation of the company, once the certificate of incorporation is issued, the certificate becomes conclusive evidence regarding the legal existence of the company from the date mentioned in the incorporation certificate.
3. If the certificate of incorporation was received on 24th but the certificate reflects the date 22nd then the company shall be taken to have come into existence from 22nd as reflected by the certificate of incorporation and this will also authenticate the transactions made by such company on 22nd and 23rd in the eyes of law.

 

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 the 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 scrutinizes the documents. If all the legal formalities are done then the registrar issues a certificate known as ‘certificate of commencement of business’. This is the conclusive evidence for the commencement of business for the public company.

Conclusion

From the above article, we understand that the company’s incorporation period can be understood to be the integration of Pre-incorporation period and incorporation period. Pre-incorporation period may be understood as the idea phase of the company. The promoter whose name is reflected in the prospectus of the company plays a very important role in collecting the funding for the company. The promoter also conducts a SWOT analysis of the company to understand the potential of such a company in the marketplace and making it a feasible option to invest upon by the investors. The duties and liabilities of the promoter has been discussed in detail showing how the relationship between the promoter and the company is fiduciary in nature. The principle of promoter’s liability relation to the pre-incorporation contract has been dealt in detail coming to a conclusion that the promoter shall be held personally liable for all the pre-incorporation contracts, unless there is novation of the contract or in case of India when the provisions of Specific Relief Act applies wherein the company ratify the contract and send communication to the other party of contract regarding their liability. The role of the government in easing the process of incorporation is very crucial as it determines the potential intention of the investors towards companies in the market. 

The ease of incorporation has been increased by making it online affair, The Ministry of Corporate Affairs provides options to incorporate the company with a unique name by providing the online option of submitting the memorandum of association along with the articles of association online with the declaration digitally signed stating that all the procedures of incorporation of a company under law have been followed by the respective company. The State’s duty as an enabler of business for the growth of the economy finds its presence in this legislation. Certificate of incorporation plays a crucial role to prove that the company has been duly incorporated and the same cannot be taken back unless the winding up is initiated for the registrar of company finds that the company incorporated has played fraud for its incorporation. The certificate of incorporation speaks for itself and receipt date of the same does not affect the date of incorporation i.e. if the incorporation certificate clearly specifies the date of incorporation as 14th February although certificate is received on 20th February all the transactions taken place after 14th February shall be taken to be done in compliance with law.