Are you looking to start a Company? What are the different types of Companies that you can set up?
If you have decided to start a company, ensure that the purpose is lawful. You have the following options under the Companies Act 2013
(a) Public Company: with a minimum of seven persons
(b) Private Company: with a minimum of two persons
(c) One Person Company (also a Private Company) with just One Person
(d) Small Company
These can be (i) limited by shares, (ii) limited by guarantee, or (iii) an Unlimited Company.
You can also form a Partnership, either with limited liability or unlimited liability, with a minimum of two persons. This is governed by the Limited Liability Partnership Act and the Indian Partnership Act, respectively.
What type of Company is best suited for you?
We can help you with a chart comparing the various company structures on different aspects. You may make an informed opinion after you read this chart.
|Company Incorporation||File a partnership deed along with a form / affidavit with the Registrar of Firms along with the required fee||File the forms, Memorandum & Articles of Association with the RoC with the prescribed fees||File the forms and the LLP Agreement with the Registrar of LLP along with the Fee.|
|Tax Rate||30% flat excluding applicable education cess||30% flat plus surcharge||30% flat plus applicable education cess|
|Can I sue||Only if you are a registered partnership can you sue third party||Yes (& can be sued too)||Yes (& can be sued too)|
|Rights and duties of partners/directors||Governed by the partnership deed||Governed by the AOA and resolutions passed by shareholders or directors||Governed by the LLP Agreement.|
|Liability of partners/members||Unlimited; Partners are severally and jointly liable for actions of other partners and the firm and liability extend to their personal assets||Limited to the amount paid up on each share||Limited to the extent of contribution to LLP except in case of intentional fraud or wrongful act of omission or commission by the partner|
|Admission as partner or member||As per the partnership Agreement||Bu buying shares of the company.||As per the LLP Agreement|
|Voting Rights||Dependent on the partnership Agreement||Dependent on the number of shares held by the members||Dependent on the terms of the LLP Agreement|
|Audit||Compulsory||Compulsory||Required only if contribution is over Rs. 25 lakh or if the annual turnover is above Rs. 40 lakh|
|Foreign nationals as partners
||Cannot be partners||Can be shareholders||Can be partners|
|Whistle Blowing||—-||A company auditor may report the matter to the Central Government||Provided to employees and partners|
What is Limited Liability and what is Unlimited Liability?
Under Unlimited liability, a partner’s liability extends to his personal assets. In a limited liability, the liability is only to the extent of respective partners’ investment in the Partnership.
What is a Public Company?
A company which is not a private company is a public company. It should have a minimum paid-up capital as may be prescribed. Note that even the subsidiary of a Public Company will be deemed a Public Company even if its Articles of Association state otherwise.
What is a Private Company?
A Company is a Private Company when:
- the Articles restricts the right to transfer of shares; and
- the Articles state that the maximum number of members that the Company can have is 200
Note: The public is not invited to subscribe for any securities of the Company. When many persons hold shares jointly, they are considered as a single member.
What is a One Person Company (OPC)?
When only One Person is a member of a Company, it is an OPC. The Memorandum of Association of the Company must indicate a nominee who will become the member upon the death of the One Person or in cases where that One Person becomes incapable of entering into a Contract. The Nominee must give a prior written consent in a prescribed form when the Company is being incorporated. The Nominee can be changed.
What is a Section 25 Company? (Section 8 according to the new Companies Act 2013)
If you are forming the Company with charitable objects, this will be governed by S.8 of the new Act. This will be a limited Company. In such a type of Company, ensure that:
- the object of the company is in promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment and other objects of this kind
- the profits and other income of the company will be used to promote its objects
- no dividend will be paid to its members
First the Central Government has to give its approval in the form of a license. The Company can then be registered through an application to the RoC. Note, any alterations to the MoA and AoA require the Central Government approval.
What is the Memorandum of Association (MoA) of a Company? What does it contain?
An MoA is a document that contains basic information about the Company at the time of incorporation including Name, the Objects of the company, the location, Share Capital and the Liability of its members. The MoA can be altered as and when there are changes to any of the aforementioned details.
Who is a Member?
When a Person subscribes to the MoA (or simply gets his name added) and when the Company is registered or when a Person can hold shares in the Company, or when a Person agrees in writing to become a Member, a Person becomes a Member. The name will be entered in the Register of Members.
What is a Director Identification Number (DIN)?
A DIN is a unique number provided to a person who is looking to become a director in the proposed Company.
What is the Articles of Association (AoA) of a Company? What does it contain?
An AoA is a document that contains the regulations for the management of the Company. This may include details regarding the Proceedings at general meetings, voting rights, board of directors, proceedings of the Board, etc.
Have you decided on a name for your Company? Are there any specific guidelines or restrictions?
The name of the Company should not
- be identical or resemble the name of a company that is already registered,
- be offensive under any current laws, and
- be undesirable in the opinion of the Central Government.
Additionally, the name should not contain any word or expression which may give the impression that the company is connected with any Government authority. The approval of the Central Government has to be obtained for use of some words and expressions.
Why do you need to register an MoA and AoA?
When registered, the MoA and AoA will bind the Company and its members to the same extent as if they respectively had been signed by the Company and each member and contained covenants on its and his part to observe all the provisions of the MoA and AoA.
All monies which a member has to pay to the Company under the MoA or AoA will be a debt that he owes to the Company.
What is the procedure to register your Company?
Submit the following documents to the Registrar (varies according to the location of your location of your Company)
- Particulars of every subscriber along with proof of identity
- Particulars of the first directors of the Company and their interests in other Companies along with their consent to act as directors of the company
- An address for correspondence till the registered office is established
- MoA and AoA of the Company signed by all the subscribers
- A declaration by an advocate or CA or CS or cost accountant that all requirements for registration under this Act have been complied with
- An affidavit from each of the subscribers and the first directors that he has not been convicted of any offence in connection with the management of the Company or of any breach of duty to the Company
Where can you get these forms?
The Ministry of Corporate Affairs website has uploaded all the forms online. It also has an instruction kit that specifies as to how you may fill each form.
When can a Company actually commence its business?
- After a declaration that is filed by a director of the Company with the RoC that every member has paid the value of shares agreed to be taken by him, is verified by the Registrar.
- Additionally, the Company must have registered a verification of its registered office with the Registrar.
The penalty for failure in submitting the declaration can extend upto Rs. 5000 excluding penalties for individual defaulting members.
Note, if such declaration is not filed within 180 days since the day of the incorporation then the Company is even liable to be removed from the Register of Companies.
How should your Company display its name?
The essential rules are:
- Paint or affix its name and address of registered office (in a conspicuous position) on the outside of its every office or place where the business is carried on
- Name and Address should be in English and in one of the local languages
- Engrave its name in legible characters on its seal;
- Print on all its business letters, billheads, letter papers and in all its notices and other official publications the following:
Address of its registered office
Corporate identity number
Telephone and fax number
E-mail and website addresses
- Print its name on hundies, promissory notes, bills of exchange and other such documents.
If you are an OPC, the words, “One Person Company” should be mentioned in brackets under the name of such company, wherever it is printed, affixed or engraved.
How do you alter the MoA?
First, a special resolution needs to be passed. A notice has to be given to the Members informing them of such a vote and the intention for the resolution must be stated. A special resolution is said to be passed when the votes cast in favour of the resolution is atleast three times the votes cast against.
The alteration should be registered in order to take effect. Note, if you are changing the name of the Company, you would need the approval of the Central Government.
How do you alter the AoA? When can it be changed?
A special resolution needs to be passed. A notice has to be given to the Members informing them of such a vote and the intention for the resolution must be stated. The alteration should be registered in order to take effect.
If you are private company and if you are turning into a public company, or vice versa, the AoA needs to be changed. Conversion from Public to Private Company requires the approval of the tribunal to take effect. Such a conversion will not affect any debts, liabilities, obligations or contracts incurred or entered into.
General Note on Alteration to MoA and AoA
Such changes are to be made to all the copies of the MoA and the AoA. If you do not comply with this then the Company and every officer will be liable to pay Rs 1000 for each copy. Once the changes have been incorporated, circulate a copy of the MoA and the AoA to the members.
Failure to comply with this will attract a penalty
What if you would like to change the name of my company after you have registered?
Sure. Fill in a new application form (link) along with the fee. Again get it signed by all the Partners. After 15 days from the date of such change, notify the Registrar along with the order of the Central Government.
Under what circumstances are you required to notify the registrar?
If you are
- Changing your Company name,
- Closing or opening a branch
- Discontinuing place of business or begin to carry on business at any place other than the principal place of business,
- Changing the name and permanent address of any partner: Respective Partners needs to intimate the Registrar
- Changing the constitution of the firm or dissolving: Such Notice needs to be provided to Registrar specifying the date thereof.
Note, when a minor is a Partner in a firm, upon attaining majority can notify the Registrar of his/her decision to become or absolve from his becoming a Partner.
If you are a foreign company that wants just a front office in India, what must you do?
An entity incorporated outside India (including a firm or other association of individuals) can open a liaison office or a branch office in India. For this, you will have to obtain permission from the Reserve Bank of India under provisions of FEMA 1999.The applications from such entities in will be considered by the RBI under two routes:
(i) Reserve Bank Route — where principal business of the foreign entity falls under sectors where 100% Foreign Direct Investment (FDI) is permissible under the automatic route.
(ii) Government Route — where principal business of the foreign entity falls under the sectors where 100% FDI is not permissible under the automatic route. Applications from entities falling under this category and those from Non – Government Organizations / Non – Profit Organizations / Government Bodies / Departments are considered by the RBI in consultation with the Ministry of Finance, Government of India.