INCORPORATION OF A COMPANY
By: Simran Kaur
The incorporation of a company is a process used to form the corporate entity or the company. A company comes into existence after being incorporated. It becomes a separate legal entity of its own, recognized by law, and can be identified with terms like “Inc” or “Limited “ in their names once it gets incorporated. Incorporation essentially means giving birth to a company.
Getting a company incorporated not only brings a company into existence but also provides some benefits. Read on to know how incorporation benefits a company and also the Procedure to get a company incorporated.
ADVANTAGES OF INCORPORATION
- It protects the owner’s assets from the liabilities of the company.
- Transfer of ownership becomes easy.
- Sales of stock raise capital, which is essential for the expansion of a company.
- Creates a protective bubble of limited liability called the ‘corporate veil’ on the company’s shareholders and directors.
- Helps enhance the image of the company.
PROCEDURE FOR INCORPORATION OF A COMPANY
There are several steps to get a company incorporated. They are:
- Application for approval of name
The first step of getting a company incorporated includes getting the approval of name from the Registrar of Companies. Companies can adopt names that are not prohibited, not identical nor resembles the name of any registered company. A panel of three names can be given to avoid any delay. The application gets accepted within 14 days and the proposed name should be registered within 3 months from the date of intimidation by the registrar. If the applicant fails to do so they will have to apply all over again.
- Preparation of Memorandum of Association
The next step is to prepare for the Memorandum of Association. It is the constitution of a company. It describes its objects, goals, and relationships with the outside world. In the case of a Private Limited Company, it has to be signed by at least 7 people while 2 in the case of a one-person company. It should be properly stamped.
- Preparation of Articles of Association
A document containing rules and regulations governing the internal system of the company known as Articles of Association has to be prepared. In the case of Public Limited Company, they are to adopt rules and regulations given under Table A, Schedule 1 of the Act. The rest of the kind can make their own.
- Preparation of other documents
- Consent of the directors is acquired and then filed with the Registrar of Companies.
- Power of Attorney in favor of anyone member or an Advocate who is to carry out all the required formalities.
- Preliminary agreements, memorandum, Articles of Association to be prepared and filed at the time of registration.
- A registered office with its information to be filed to the Registrar within 30 days of its registration or from the date of commencement of business.
- The particulars of first directors (if the company names them in its Articles), are to be submitted to the Registrar within 30 days of its registration or appointment of such directors.
- A statutory declaration stating that all legal requirements for registration have been complied with and filed with the Registrar at the time of registration. It can be signed either by an advocate of the Supreme Court or the High Court, attorney or pleader of the High Court, or a practicing Chartered Accountant.
- Payment of fees
The prescribed registration fees and the filing fee for each document filed for registration are to be paid at the Registrar’s office. The required fee to be paid depends upon the amount of nominal capital for companies with share capital and according to the number of members for companies without share capital.
- Incorporation Certificate
Once all the required documents are filed with the Registrar along with the requisite fees, an inquiry takes place. If all documents are found in order, the Registrar enters the name of the company in the Register of Companies and issues a Certificate of Incorporation. Eventually, the date mentioned in the certificate becomes the date of incorporation of the company.
- EFFECTS OF INCORPORATION
After incorporation, the company becomes a separate legal entity in perpetuity. A certificate of incorporation is tangible proof of the company's existence. Once a certificate of incorporation has been issued, the company is in place from the date mentioned. Any shortcomings or weaknesses found in the company's input over time will not affect the company's existence and inclusion, it will remain valid.
- COMMENCEMENT OF BUSINESS
According to Section 149 of the Companies Act, 2013, a private company can commence its business when it gets incorporated, however, in the case of a public company, a certificate for the commencement of business has to be obtained. For a company that has issued a prospectus inviting the public to subscribe for its shares, it becomes necessary. It will be entitled to the certificate subject to the following conditions according to Section 149(1):
- Cash payable shares should be allocated up to a minimum subscription amount;
- The directors must pay in cash the application and the amount allocated in respect of the shares agreed to be taken by them in cash;
- No money is liable to become refundable to the applicants because of failure to apply for or to obtain permission for shares or debentures to be dealt in on any recognized stock exchange.
- No public company may start any business or exercise any borrowing power without obtaining this certificate. No contract can be entered into before the date on which the company is entitled to start the business. A certificate is an absolute proof that a company has such a right.
The incorporation of a company, therefore, has a lot of challenges. It is highly dependent on the needs of the business, the intention of the members, and how they want to take the business forward.