The Companies Act, 1956 stipulates rules and regulations for incorporation of companies in India for both private and public companies. Minimum two directors and two shareholders are required for incorporating a private company whereas minimum three directors and seven shareholders are required for incorporating a public company. Minimum Paid- up capital of a private company at the time of incorporation should be Rs. 1 Lakh (INR 100,000) and it should be Rs. 5 lakhs (INR 500,000) for a Public company. Those companies which are set up with Foreign Investment (FDI) have to be so incorporated under the Companies Act with the Registrar of Companies (ROC). Once a company is registered in India, it is guided by the Indian laws.
The first step in the incorporation of a company is the name approval by the Registrar of Companies. Not less than three names should be selected which should be in sync with the main objects of the company and an application for name approval in Form 1A is to be filed with the ROC of the state in which the company is to be incorporated. The name of the company should not be same with the name of an existing company and must not violate the provisions of Emblems and Names (Prevention of Improper Use) Act, 1950. Further, it is mandatory that the last words in the name of the company should be ‘Private Ltd.’ in case of private companies and ‘Limited’ in case of public companies.
Within seven days from the date of submission of application, ROC informs about the availability of name. If the proposed name is not available, the company can apply for a fresh name in the same application. Once the name is accepted, it is valid for a period of 60 days, within which time the company can complete other formalities like drafting of Memorandum of Association and Articles of Association and filing of various documents. Memorandum of Association is the charter of the company which contains the basic clauses on which the company is to be incorporated. The company is not formed unless Memorandum of Association and Articles of Association are registered with the ROC.
After completion of the preliminaries the company has to file the following documents with the Registrar of Companies of the state in which the company proposes to be incorporated:
Once the ROC is satisfied that the company has complied with all the formalities, it issues a Certificate of Incorporation and finally the company comes into existence and can start its operations. After the receipt of Certificate of Incorporation, a private company can commence its business with its own capital because a private company is restricted to invite the public for subscription to its share capital. But a public company has the option to invite public for subscription. Consequently, the company has to issue a prospectus. It is mandatory to file the prospectus with the ROC before issuing it to the public. A statement in lieu of prospectus is to be filed with the ROC in case the company decides not to invite public subscription. Thereafter, A Certificate of Commencement of business is issued by the ROC to the Public Company.