What are the Company Formation Essentials under Companies Act?

Introduction

The Companies Act governs the incorporation and functioning of companies in India. Section 3 under the Companies Act, 2013, lays down the requirements for the formation of a company. In this blog, we will discuss the steps in the formation of a company, the documents required for company registration, the effect of registration of a company, and the company incorporation procedure.

Company Formation : An Overview

Company formation refers to the process of legally establishing a business entity. It involves the creation of a separate legal entity that can conduct business activities, enter into contracts, own assets, and be held liable for its obligations. Company formation provides entrepreneurs and business owners with various benefits, including limited liability protection, credibility, and access to financing opportunities. The process of company formation generally includes several essential steps. These steps may vary depending on the jurisdiction and the type of company being formed. Some common steps involved in company incorporation procedure include:

1. Choosing the Type of Company: Selecting the appropriate legal structure for the business, such as a Private Limited Company, Public Limited Company, or One Person Company.

2. Naming the Company: Selecting a unique name for the company that complies with the legal requirements and does not infringe on the rights of existing entities.

3. Drafting the Company’s Constitution: Preparing the Memorandum of Association (MOA) and Articles of Association (AOA). The MOA defines the company’s objectives and scope, while the AOA sets out the internal rules and regulations for the company’s operation.

4. Appointing Directors and Shareholders: Identifying individuals who will serve as directors and shareholders of the company. The number and qualifications of directors and shareholders may vary based on the company type and local regulations.

5. Registering the Company: Filing the necessary documents, including the Memorandum of Association (MOA) and Articles of Association (AOA), and other required forms, with the relevant government authorities or Registrar of Companies (ROC).

6. Obtaining Legal Approvals: Obtaining any required approvals or licenses specific to the industry or sector in which the company will operate.

7. Establishing a Registered Office: Providing a registered office address for the company, where official correspondence and documents required for company registration can be sent.

8. Compliance and Ongoing Obligations: Complying with statutory requirements, such as filing annual financial statements, holding annual general meetings, maintaining proper records, and fulfilling tax and regulatory obligations.

Company formation is a significant step in establishing a legal entity that can engage in commercial activities. It is important to consult with legal and financial professionals who can guide business owners through the process, ensuring compliance with relevant laws and regulations.

What are the Company Formation Essentials?

The company formation essentials as per the companies act, 2013

1. Type of Company: Determine the appropriate type of company structure based on the nature of the business, such as Private Limited Company, Public Limited Company, One Person Company, or others.

2. Unique Company Name: Select a unique name for the company that is not identical or similar to existing companies and complies with the naming guidelines specified by the Registrar of Companies (ROC).

3. Memorandum of Association (MOA): Prepare the MOA, which outlines the company’s objectives, scope, and activities. It defines the primary purpose for which the company is established.

4. Articles of Association (AOA): Draft the AOA, which contains the rules and regulations governing the internal management, administration, and operation of the company. It covers aspects such as shareholder rights, appointment of directors, meetings, voting procedures, and dividend distribution.

5. Registered Office Address: Have a registered office address within India that can receive official communication and notices. The registered office address must be provided during the incorporation process.

6. Directors and Shareholders: Appoint a minimum number of directors and shareholders as required by the Companies Act. Private Limited Companies typically require a minimum of two directors and two shareholders, while Public Limited Companies need a minimum of three directors and seven shareholders.

7. Share Capital: Determine the authorized and paid-up share capital for the company based on the company type. Private Limited Companies usually have a minimum authorized share capital of Rs. 1 lakh, while Public Limited Companies require a minimum authorized share capital of Rs. 5 lakhs.

8. Compliance with Regulatory Authorities: Comply with the regulations and provisions of the Companies Act, including filing of annual financial statements, holding annual general meetings, maintaining statutory registers, and submitting necessary documents to the ROC within specified timelines.

9. Statutory Documents: Prepare and file various statutory documents, including the MOA, AOA, declaration of compliance, and other documents required for company registration under the Companies Act.

10. Director Identification Number (DIN): Obtain a DIN for the directors of the company, which serves as a unique identification number.

11. Digital Signature Certificate (DSC): Obtain a DSC for the directors and subscribers of the Memorandum of Association (MOA) and Articles of Association (AOA). The DSC enables secure online transactions and submissions.

Conclusion

In summary, the process of company formation under the Companies Act, 2013 involves determining the company structure, obtaining name approval, preparing the MOA and AOA, and filing the necessary documents with the ROC. Registration offers numerous benefits, including legal identity, contractual capacity, limited liability protection, continuity, credibility, and access to finance. Following the company incorporation procedure ensures a smooth and legally compliant establishment of the company.