Introduction
Incorporation of a company is a process by which a company becomes a legal entity, It can be compared to the birth of a company. It is a legal process and is governed by The Companies Act 2013. There are various types of companies, but the major ones are namely private limited companies and public limited companies. The 2013 statute also gave rise to a new form of company namely One Person Company (OPC). There also exists holding and subsidiary companies, government companies and foreign companies. An advantage of having a company as a business entity is the fact that it is a separate legal entity, unlike sole proprietorship and partnership forms.
The Companies Act 2013 is less bulky as compared to its predecessor of 1956, it also changes provisions on minimum subscription, Interest on calls in advance as well as arrears etc. The companies are not just governed by this Act but have to follow the provisions of Foreign Exchange Management Act, 1999, Shops and Establishment Act, Income Tax Act, etc.
Advantages
The advantage of incorporating a company is that the company can sue and be sued in its name, it can own property. Moreover, incorporating saves the shareholders from having their personal assets liable to shareholders, it creates a limited liability for members. this means that the liability of shareholders is to the extent of their share contribution. The section 82[1] talks about transferability of shares in the open market. A noteworthy case on transferability of shares is Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Ltd.
Process of Incorporation
The minimum requirement of members in a public company is 7 and private company is 2.[2]
The steps for incorporation are:
- Approval of Name: Firstly, the applicant has to log into the Ministry of Corporate Affairs website. The applicant has to select a minimum of one name and a maximum of 6. This name cannot be plagiarized or similar to other existing company names. It should also not violate the provisions of the Prevention of Improper Use Act, 1950.
In case the name is not approved, the applicant has to reapply in the same application. A fee of Rs. 500 is paid at this stage and the approved name is available for 20 days. - Preparation of documents: INC-9, DIR-2-, NOC from the owner of the property, Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent receipts); Copy of the utility bills which should not be older than two months. In case of subscribers/ Director does not have a DIN, it is mandatory to attach: Proof of identity and residential address of the subscribers. Moreover, all the Subscribers should have Digital Signature.
- Filling of the f SPICe+ (Inc-32) form
- Preparation of Memorandum and Article of Association( MoA and AoA)
- Filling of e-Form No.32 – Consent of directors, e-Form No.18 – Notice of Registered Address, e-Form No.32. – Particulars of Directors and Statutory Declaration in e-Form No.1.
- Payment of Registration Fees
- Certificate of Incorporation from RoC
According to section 149[3] a private company can commence its business now but there is an additional Step for Public Company to obtain Certificate of Commencement of business
Fill in declaration in e-Form 19 and 20.
Role of Promoter
A promoter is like the starter or parent of the company. It is defined in section 2(69) [4]
“Promoter” means a person-
(a) someone whose name is in the AR of the company or in the prospectus referred to in Sec 92; or
(b) Someone who has influence over the BoD as a shareholder or a director and is able to control the affairs; or
(c) As per the accordance to his guidance, advice and instructions, the BoD are supposed to act: Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity
Memorandum of Association[5] and Article of Association[6] (section 4 and 5)
It is like the constitution of the company and includes various clauses like
Name clause: This defines the name of the company. A public company ends with “Limited” and a private company ends with “private Limited”
Registered office clause or situation clause (section12) : This clause defines the place where the company is located.
Objects clause: This defines the purpose for which company is formed.
Liability clause: This defines whether the liability of the company’s members are unlimited or limited, I.e., limited by shares or guarantee.
Capital clause: This defines the amount of shares and its division.
The AoA on the other hand creates a contract between the company and shareholders and defines the rules.
Landmark Judgements
1)The State Trading Corporation Of India Ltd. & Ors V. The Commercial Tax Officer, Visakhapatnam & Ors[7]
A writ was filed under Article 32[8] for enforcement of rights by The State Trading Corporation. This appeal was dismissed as Article 32 applies only to citizens and it was held that a company is not a citizen. It was further established that “all citizens, indicating thereby that under the Constitution all citizens are persons but all persons are not citizens”
2) Salomon V. Salomon & co. Ltd.[9]
In this case the principle of corporate veil was founded, which separates the company from its shareholders. The same principle was later applied in Lee v Lee’s Air Farming Ltd[10]. Mr Salomon incorporated a company with his wife, his daughter and four sons for £39,0000. The issue arose that whether Mr. Salomon should be held personally liable. It was held by Lord Halsbury that “once company is legally incorporates it is an independent person with rights and liabilities of its own and these aren’t influenced by the motives of the people involved in its promotion. The company conducts its own business as a separate person.”
This corporate veil can also be lifted and was done so in the case of Steel & Tube Holdings Ltd v Lewis Holdings Ltd.[11]
Conclusion
In a nutshell, The Companies Act 2013 reduced the number of sections as compared to its predecessor and made the process easier. The advantages of registration are plenty. It becomes a separate legal entity, can buy property in its name. In times of conflict, it can sue. Thus, registration and incorporation is very important.
Reference
[1] Section 82 of The Companies Act 2013
[2] Section 3 of The Companies Act 2013
[3] Section 149 of The Companies Act 2013
[4] Section 2(69) of The Companies Act 2013
[5] Section 4 of The Companies Act 2013
[6] Section 5 of The Companies Act 2013
[7] 1963 AIR 1811, 1964 SCR (4) 89
[8] Article 32 of The Indian Constitution
[9] Salomon v Salomon & Co Ltd [1897] AC 22
[10] Lee v Lee’s Air Farming Ltd [1961] AC 12
[11] Steel & Tube Holdings Limited v Lewis Holdings Limited [2016] NZCA 366
