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What is Company incorporation?

Incorporation is the legal process used to form a business company. A corporation/ company is a separate legal entity from its owners, with its own rights and liabilities. Company Incorporation means making the business company a legal person. Corporations are usually identified as such by the use of terms such as “Inc.” or “Limited (Ltd.)” in their names. It is the process of legally declaring a corporate entity as separate from its owners.

Why Company incorporation is Necessary?

1. A registered company shields it’s owners from liability.

2. It helps in establishing perpetual existence and Transfer of ownership.

3. It helps in gaining tax advantage

4. It provides authenticity to company image.

5. It improves the ability to manage.

Types of Company's Incorporation in India

1. Public Limited Company:The public owns a Public Company. There are two uses of this term. It’s a company that is owned by stockholders who are members of the general public and are traded publicly. While it requires 7 or more people for setting up it’s operation. A company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purpose of this Act even where such subsidiary company continues to be a private company in its articles.

2. A Private Company: It is a closely held company and requires at least two or more people for its formation. A private Company cannot be traded publicly. It means a Company restricts the right to transfer it shares and except that in a One Person Company and limits the number of it’s member to 200.

3. Unlimited Company: In an Unlimited Company, general partners and sole proprietors are responsible for paying off all of the company debts personally if the company can’t make its payments. An unlimited company generally means a company that does not have any limit on the liability of its members.

4. One Person Company: As the name itself suggests it is a company that is owned by one single person. There can be only one, natural person who is a resident of India that can be the member of an OPC.

5. Section 8 Company: The Companies Act defines a Section 8 Company as one, whose objectives is to promote fields of arts, commerce, science, research, education, sports, charity, social welfare, religion, environment protection, or other similar objectives. These companies also apply their profits towards the furtherance of their cause and do not pay any dividend to their members.

6. Producer Company:A “Producer Company” means a corporate body having objects or activities specified in section 581B and registered as Producer Company under the Companies Act, 1956. A Producer Company relates to the following matters:

(a) Production, harvesting, procurement, grading, pooling, handling, marketing, selling, export of primary production of the Members or import of goods or services for their benefit, provided that the Producer Company may carry on any of the activities specified in this clause either by itself or through other institution.

(b) Rendering technical services, consultancy services, training, education, research and development and all other activities for the promotion of the interests of its Members;

(c) Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communications relatable to primary produce;

(d) Promoting mutual assistance, welfare measures, and financial services, insurance of producers or their primary produce.

Steps for Company Incorporation

Step 1: Application for approval of name:

The first step in getting a company incorporated is of obtaining the approval of name from Registrar of Companies. A company may adopt any name which is not prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950 and which is not identical with or does not closely resemble the name of a company already registered. The applicant should give a panel of three names in order to avoid delay. The application for the approval of name should be sent the Registrar of Companies of the state, in which, the Company is to be situated. The Registrar is expected to approve the name within 14 days of the receipt of application. The Registrar, failing which, must register the proposed name within 3 months from the date of intimation, the promoter will have to apply again to the Registrar for the revalidation of the approval.

Step 2: Preparation of Memorandum of Association:

The preparation of Memorandum of Association is the next step in the company incorporation. It is the constitution of the company, which describes its objects and scope and the relation with outside world. The memorandum is to be signed by at-least seven persons if it is a public limited company and at least two persons in case of a private limited company. The memorandum should also be properly stamped.

Step 3. Preparation of Articles of Association:

Besides memorandum, the promoters will also prepare Articles of Association. It is a document, which contains rules and regulations relating to the internal management of the company. A public limited company may not file its own Articles of Association; it may adopt model clauses prescribed in Table A, Schedule 1 of the Act. A private limited company is also required to submit its Articles duly signed by the signatories.

Step 4: Preparation of other documents- the promoters are also expected to prepare the following documents at the time of incorporating the company:

(i) The consent of directors is acquired first and filed with the Registrar of Companies.

(ii) The promoters should execute a Power of Attorney in favour of one of them or an advocate who is to carry out the formalities required for registration.

(iii) Copies of preliminary agreements, memorandum and Articles of Association must also be prepared and filed at the time of registration.

(iv)The company is required to have a registered office and its information is filed with the Registrar within 30 days of its registration or from the date of commencement of business, whichever is earlier.

(v) Where the company names first directors in its Articles, their particulars are to be submitted with the Registrar within 30 days of its registration or appointment of such directors.

(vi)A statutory declaration that all legal requirements for registration have been complied with is also filed with the Registrar at the time of registration. An advocate of Supreme Court or High Court, or an attorney or pleader of High Court or a practicing Chartered Accountant must sign the declaration.

Step 5: Payment of fees- At the time of registration, prescribed registration fees and filing fee for each document filed for registration are to be paid at the Registrar’s office. The fee to be paid varies with the amount of nominal Capital in case of companies with share capital or according to the number of members in case of companies without share capital.

Step 6: Incorporation Certificate- Once all the required documents are filed with the Registrar along with the requisite fees, a scrutiny is arranged. When all documents are found in order, the Registrar will enter the name of the company in the Register of Companies and issues a Certificate of Incorporation. The date mentioned in the certificate is the date of company incorporation.