Chartered Accountants in Delhi- Company Formation in India - FAQ's

Chartered Accountant in Delhi India faq's on Company formation

What is a Private Limited Company?

A Private Limited Company is limited by shares with a maximum of 50 shareholders and no invitation can be made to the public for the subscription of either its shares or debentures, with restriction to make or accept deposits from Public, and transfer of shares through public offer.
In a Private Limited Company, the shareholders liability is limited to the extent of the unpaid amount of the face value of the shares and the premium thereon in respect of shares held by a shareholder.

What is a Public Limited Company?

A Public Limited Company is limited by shares with no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The shareholders liability is limited to the extent of the unpaid amount of the face value of shares and the premium thereon in respect to shares held by a shareholder. The minimum number of shareholders required for a Public Limited Company is seven.

What is the minimum paid-up capital of a Private Limited Company?

At the time of incorporation of a Private Limited Company, the minimum paid up capital has to be Rupees 1,00,000 in Indian currency. There is no sealing on maximum limit of authorized capital or paid up capital. Any time during the lifetime of the company the capital can be raised by the payment of additional stamp duty and registration fee.

What is the difference between authorized capital and paid up capital?

Authorized capital is share capital of such kind where the capital limit is authorized by the Registrar of Companies up to which the shares can be issued to the members or public, whereas paid up share capital is share capital of such kind where the paid portion of the capital is subscribed by the shareholders.

What is the procedure in obtaining a name approval for the proposed Company?

For obtaining a name approval of the proposed company, first an application in Form No.1A needs to be filed, properly filled, with the Registrar of Companies (ROC) online through Digital Signature of any one of the proposed director. Details to be furnished are as given below:

Alternative names of the proposed company in priority sequence. The names can be the coined name from the objects of the proposed company or even the name of the directors, and of such kind. Whatever be the case, it should be indicative of the main object of the proposed company. The name justification is required to be specified along with the application.

Names and addresses of the promoters are to be mentioned. (for Public Company it is minimum 7 and for Private Company it is 2).

Authorized Capital and main objects of the proposed company are to be mentioned.

Names of other group companies in which directors hold directorship has also to be given.

The ROC scrutinizes the application after receiving and within 3 to 4 days sends the approval or objections to the applicant through e-mail.

What is the Memorandum of Association (MOA) and the Articles of Association (AOA) of a company and what is the procedure in this regard?

After the approval of name from ROC, there is requirement to draft MOA and AOA. MOA states the main, ancillary or subsidiary and any other objects of the proposed company whereas the AOA contains the rules and procedures for the routine conduct of such proposed company, and also the authorized share capital and names of its first or permanent directors. Both the MOA and the AOA is thereafter stamped from Collector of Stamps. The stamp duty paid depends on authorized share capital.

What are the documents required to be executed for incorporation?

The undermentioned documents are required to be filed with ROC for incorporation of company:

MOA and AOA - Should be signed by the promoters in handwriting in the presence of a witness. It should state details like full name, father's name, residential address, occupation and number of shares subscribed for.

Form No. 1 - This form is a declaration executed on a non-judicial stamp paper by one of the directors of the proposed company. If not by director then by any other specified persons like Attorneys or Chartered Accountant and states that all the requirements of the incorporation have been complied with.

Form No. 18 - This form is to be filed by one of the directors of the proposed company and informs the ROC about the registered office of the proposed company.

Form No. 32 - This form states the fact of appointment of the proposed directors on the board of directors from the date the proposed company is incorporated and it is digitally signed by proposed director.

Power of Attorney is to be signed by all the subscribers of MOA, authorizing either one of the subscribers or any other person to act on their behalf for the purpose of incorporation as well as accepting the certificate of incorporation.

The filing fees as may be applicable.

How is the certificate of incorporation issued?

With the filing of documents the ROC calls the attorney of the proposed company for scrutiny and making the corrections in the MOA and AOA that has been filed. After all these formalities the certificate of incorporation is sent by post to registered office of the company.

When can the newly formed company start its business operations?

The public company is suppose to complete certain other legal formalities after receiving the certificate of incorporation. These include a statutory meeting (within 6 months) and statutory report. On completion of such formalities and on filing of the statutory report with the ROC, the ROC then issues the certificate of commencement of business to the company. After this the Public Company can start its business operations. In case of Private Company, it can start the business immediately on incorporation.

How do we comply with the legal formalities when we are not stationed in India?

By giving Power of Attorney to a person who appears before the ROC to complete the necessary formalities after getting the MOA, AOA, Power of attorney and other allied documents. Documents are e-mailed to client and after taking the printout they are signed by respective directors and promoters of the company. Signatures of promoters and directors are attested by notary public and Indian Embassy/Consulate located in their base country. Attestation from Indian embassy/consulate is not required if promoters and directors are based in Common Wealth country.

What other approvals are required for foreign investor in India?

After the company has been incorporated in India, the foreign investor has to either intimate the Reserve Bank of India (RBI) about the foreign equity or take approval of the Foreign Investment Promotion Board (FIPB). The intimation or approval depends upon the sector in which the foreign investor intends to do business.

How does a foreign company invest in India?

   1. By Automatic Approval by the Reserve Bank of India (RBI). This is available for all items or activities except a few as given in the Press Note No.4(2006series)

No prior approval required. The company is required to report only to the RBI within 30 days of the receiving of foreign equity/allotment of shares.

   2. By Foreign Investment Promotion Board's (FIPB) approval for all other proposals that are not eligible for Automatic Approval.

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