How to Incorporate a Public or Private Company- a Step by Step guide.

Introduction

Section 2(71) of the Companies Act, 2013 (hereinafter referred to as CA, 2013) defines a ‘public company’ as a company which is not a private company, and which has a minimum paid up share capital as may be prescribed. Also, a company which is a subsidiary and not a private company shall be deemed to be a public company even where such subsidiary company continues to be a private company in its articles.

Important Pre-Requisites to Incorporate a Public Company

  • Public company is required to have seven or more persons as per Section 3(1) of CA,2013.
  • The company shall have a Board of Directors consisting of individuals as directors and shall have a minimum of 3 directors and maximum of 15 directors.
  • The company shall have a registered office within 30 days of its incorporation.
  • Every subscriber is required to have a digital signature certificate except in case of incorporation of a company having more than seven subscribers or where any of the subscribers to the MOA/AOA (Memorandum of Association/Articles of Association) is signing at a place outside India.
  • Also, incorporation form is to be signed by the proposed director. A professional advocate or a Chartered Accountant or Cost Accountant or a Company Secretary in practice shall be engaged to give a declaration that all requirements of the Act and rules thereunder in respect of registration and related matters are complied with.
  • In instance of pursuing any object of the company that requires registration or approval of sectoral regulator such as RBI, SEBI, IRDA, etc. shall be taken before pursuing such objects.

Procedure For Incorporating a Company (Public or Private)

1.     Step-1 – Reserving a Name for the Company

This stage is governed by Section 4(4) read with Rules 8 and 9 of the Companies (Incorporation) Rules, 2014. An application for reservation of name of the company is made with the Registrar, Central Registration Centre (CRC) through the web service at www.mca.gov.in by using RUN (Reserve Unique Name) along with the relevant documents. A fee of Rs. 1,000 is charged.

Currently name reserve and registration facility is available on the MCA website through SPICE+.

Relevant points to consider are-

  • One can provide for two names and one re-submission through the RUN web service.
  • Form INC-32 can also be used to make an application for name availability along with the application for registration of OPC. However, this mode of consolidated application is recommended to be used only when the applicant is certain of name availability.
  • In case of a mistake in the proposed name, as per Section 4(5)(ii) of the 2013 Act, one can put forth a fresh application in e-Form INC-I along with the requisite fees after surrendering the Name reserved by the concerned ROC.

2.    Step-2- Receiving the Name Approval Letter-

This stage is governed by Section 4(5)(i) read with Rule 9 of the Companies (Incorporation) Rules, 2014. After receiving the application, the CRC may either approve or reject the application. Upon approving the name, the reserved name shall remain valid for 20 days from the date of approval.

3.    Step-3 – Arrangement of Declaration, MOA, AOA, etc.

File an application to acquire a digital signature certificate (DSC) from the concerned authorities for the applicant, promoters/subscribers or any other authorised representative to engage in secured online transactions with MCA (Ministry of Corporate Affairs) and in compliance with Information Technology (IT Act) , 2000. Then the DSC has to be registered for use.

File Form no. DIR-3 through CRC for the allotment of DIN (Director identification number) for all the proposed directors (minimum must be 3). Then, in furtherance to sections 7 and 153 an application for allotment of DIN for directors will be made in Form INC- 32 (SPICe). The procedure to apply for DIN can be referred to at Ministry Of Corporate Affairs – DIN Process (mca.gov.in).

As per Section 7(1)(e) read with rule 16 of the Companies Incorporation Rules, 2014, proof of identity and residential proof of every subscriber to the MOA is obtained. (Note- if the subscriber already holds a valid DIN then proof of identity and residence need not be obtained.

Further, in compliance with Sections 3(1), 4(6), 5(6) and 7(1)(a) read with Rule 11,13 and 38 of the Companies (Incorporation) Rules, 2014, proposed company’s e-MOA (e-Memorandum of Association) and e-AOA (e-Articles of Association) are prepared in Forms INC-33 and INC-34, respectively. It must be signed by subscriber in the presence of at least one witness. Here, both the subscriber and the witness are required to affix their digital signature to the e-MOA and e-AOA.

When there are more than 7 subscribers to the Articles of Association (AOA)/ Memorandum of Association (MOA) or one of them and any one of them is signing at a place outside India – then MOA/AOA has to be prepared in physical and has to be signed by each subscriber in the presence of at least one witness.

Furthermore, in compliance with Section 7(1)(c) read with rule 15 of the Companies (Incorporation) Rules, 2014, a declaration is required to be obtained from the subscriber to the MOA and from persons named as first directors, if any. The declaration is sought in the AOA in Form INC-9 that-

  1. he is not convicted of any offence in connection with the promotion, formation or management of any company, or
  1. that he has not been found guilty of any fraud or misfeasance or of any breach of duty to any company under the Act or any previous company law during the preceding 5 years and
  1. that all the documents filed with CRC for registration of the company contain information that is correct and complete and true to the best of his knowledge and belief.

Also, the MCA Circular No. 11/2013 dated 29.05.2013 provided to obtain declaration-cum-affidavit from the subscriber/first directors that the company or its directors shall not accept any deposits other than in compliance with the applicable provisions of the Companies Act, 2013, RBI Act, 1934 and SEBI Act, 1992 and rules/ directions/regulations made thereunder. (Important: – the said declaration is not provided for in the Act but the CRC is asking for it).

Further, as per Section 7(1)(d), in the application for registration of the company, either a temporary address for correspondence can be provided till the time the registered office of the company is established or a registered office address. Then, provide for requisite documents to be filed with Form INC-32 (SPICe) for verification of registered office.

Additionally, it is required to obtain the particulars of the persons mentioned in the AOA as the first directors of the company along with their consent to act as directors of the company in Form DIR-2 to conform to Section 7(1)(f) and (g) and 152(5) read with rule 8 of the Companies (Appointment and Qualifications of Directors) Rules, 2014.

4.    Step-4- Steps for Filing Application for Incorporation

As per Section 7 read with Rules 12 to 16 and 38 of the Companies (Incorporation) Rules, 2014, the application for registration is filed with the CRC in form INC-32 (SPICe) along with the e-MOA and e-AOA and other requisite documents and fees.

Thereafter, as per section 7 read with Rule 38(9)(a) of the Companies (Incorporation) Rules, 2014, CRC on examining the application may find it necessary to call for further information or find such applications or documents defective or incomplete in any respect, he shall intimate the applicant to remove the defects and re-submit the e-form within 15 days from the date of such intimation.

Then, as per Section 7 read with Rule 38(9)(b) of the Companies (Incorporation) Rules, 2014 after resubmitting the document, if CRC still finds defectiveness or incompleteness then it shall give another opportunity of 15 days to remove the defects. (Note- a maximum of 30 days will be allowed for re-submission of documents.

5.    Step 5- Steps After Filing Application for Incorporation

As per Section 7 read with Rules 18 and 38(10) of the Companies (Incorporation) Rules, 2014, upon being satisfied the CRC shall issue certificate of incorporation (COI) in Form INC-11 and allot DIN (if applied for) and PAN and TAN of the company.

Thereafter, if during the time of incorporation of the company, address of the registered office has not been finalized then as per Section 12 read with Rules 25 and 27 of the Companies (Incorporation) Rules, 2014, a notice of situation of registered office has to be filed within 30 days of incorporation in Form INC-22 along with required documents and fees.

In instances where the company is having share capital, then a declaration has to be filed in Form INC-20A within 180 days of the date of incorporation, with ROC that- every subscriber to MOA has paid the value of the shares agreed to be taken by him on the date of making of such declaration and 2) verification of registered office is filed with ROC. (Important note: the content of Form INC-20A shall be verified by a company secretary or a chartered accountant or a cost accountant, in practice.

Estimated Timeline

The process for incorporating a company (public or private) will take a minimum 6 days to a maximum of 73 days.

  • Application for reservation of name by using RUN, if any would require a minimum 1 day and 3 days.
  • Application for incorporation of a company will take a minimum of 2 days to maximum 20 days.
  • Thereafter, approval of application and issuance of COI by the ROC and PAN and TAN will take a minimum of 2 days and maximum of 20 days.
  • Notice of situation of registered office has to be given within 30 days.

Frequently Asked Questions

  1. What are the benefits of a private or public company?

They both offer-

  • separate legal existence different from shareholders.
  • offer limited liability of shareholders.
  • promote employment generation and boost economic growth hence given tax exemption and other benefits by the government.
  • easier to raise fund from financial institutions.

2. How to decide which type of company is more suited for you?

In public company-

  1. A public company requires minimum seven shareholders.
  2. There is no limit on the maximum shareholders unlike the private company (which is 200);
  3. Public company can raise funds from the general public.
  4. As public interest is involved there is a higher government intervention in comparison to private companies.
  5. It requires a minimum of 3 directors who should be individuals and should have stayed in India for at least 182 days in the previous Financial Year. Maximum number of director is 15.

So, public company provides access to wider funds which can enable the company to expand largely in comparison to private companies which operate usually on a small scale but with limited restrictions. Private company is suitable for enterprises that can raise initial funds on their own and have a limited service area. Later, they can convert to a public company as they expand by following the procedure.

Conclusion

Incorporation of public and private company is a simple process and either of it can be adopted by the interested party depending upon their situation and needs. In case of further query or assistance, feel free to contact the undersigned.

Author

  • Sapna is an Advocate and Associate at Redlaw. Her major area of practice includes Corporate and Commercial Laws, both compliance and dispute resolution.

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