Formation of Company

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Dr. V. K. Jain
M.Com., LL.M., M.Phil., Ph.D. (Tax), FCS
Chairman, Nagpur Chapter of ICSI
 Why Company ?
• Form of Business Organization
• Means to an end
• It provides an organisational
structure
• It has advantages over other
forms of business organizations.
• The most important advantages
being:
– Limited liability
– Access to huge capital and capital
market
– Transferable shares
– Professional management –
Separation of ownership from
management
– Corporate Personality
– Perpetual Succession
 Formation of Company
Four Stages of Company Formation
- PROMOTION STAGE
- INCORPORATION STAGE
- RAISING OF CAPITAL STAGE
- COMMENCEMENT OF BUSINESS STAGE.
A private company has to pass through only
two stages,namely, the promotion stage and
the incorporation stage.

While the formation of a public company

involves all the four stages
Promotion Stage:
The term ‘promotion’, refers to the process by
which a company is brought into existence.

The promotion stage comprises of conceiving

a scheme or a project, investigating the
feasibility of the project; organizing the
resources (men, material and money) and to
take all necessary steps to float a company.
Preliminary preparations incidental to the
incorporation are done in the promotion stage.
This include:

A. The decision regarding the type of the

company to be floated, viz, public company or
private company.
 B. Obtain DIN (Director Identification
Number) for all proposed Directors.

- Apply to MCA-DIN Cell, Noida in DIN 1 Form

alongwith ID Proof (Ex. PAN Card, Passport, Election Card,
Driving Licence) and Address Proof (Ex. Electricity Bill,
Telephone Bill, Bank Account Statement), Affix one Color
Passport Size Photograph on DIN 1 Form

- Pay fee of Rs. 100 on DIN 1 Form by challan.

- DIN will be approved within 5 to 6 days

if everything is in order.
C. Selection/ Approval of
name of a company.
The following points should be noted
in this connection:

- The name of the company should not be

UNDESIRABLE (i.e. it should not be identical with or
too nearly resemble the name of any existing company.) Sec.
20.

- The provisions of the Emblems and Names

(Prevention of Improper Use) Act,1950 should be kept in
view.
 ➾ DCA Circular – 7-3-89 : Using Keywords
Key Words: Required Authorised Capital (Rs.)

iv) Corporation 5 Crores

ii) International, Globe,

Universal, Continental, 1 crore
Inter-Continental, Asiatic,
Asia, being the first word of the name

iii) If any of the words at (ii)

above is used within the 50 Lakhs
name (with or without brackets)
iv) Hindustan, India, Bharat,
being the first word of the name 50 lakhs

v) If any of the words at (iv) above

Is used within the name 5 lakhs
(with or without brackets)

vi) Industries/Udyog 1 crore

vii) Enterprises, products, business,

manufacturing 10 lakhs
The guiding instructions of the Department of
Company Affairs regarding availability of new
names should be observed.
Ex. The name should reflect the objects of the
Company.
 Procedure for availability of Name:
- Form No 1A
- If you put the DIN, the form will get pre-filled
with details of Directors
- Authorised capital should be kept minimum as
possible. (for a company with authorised capital of Rs.
5 lakhs, the registration fees and stamp duty will be
Rs. 18,300 and for authorised capital of Rs. 1 lakhs,
the registration fees and stamp duty will be Rs. 5,900)
Note: Once the type of company is selected, later on you
cannot change the Status.
 D. Preparation of Memorandum and
Articles of Association.

- Minimum Paid-up capital must be mentioned

Incorporation Stage:
 Prescribed forms
 Prescribed fees
 Prescribed documents
to be filed with ROC of the state in which the
company is to be incorporated. (Sec 33).

Following documents are to be submitted

electronically as scanned attachment to E-Form
No. 1. After submission, a SRN (Service request
number) will be generated by the system.
1. MEMORANDUM OF ASSOCIATION duly
signed by the minimum number of subscribers,
stamped and witnessed.

2. ARTICLES OF ASSOCIATION, which should be

similarly signed, stamped and witnessed.
3. A STATUTORY DECLARATION stating that all
the provisions of Companies Act,1956 with regard
to registration have been complied with.Section
33(2). The declaration should be in FORM NO. 1
on a non-judicial stamp paper of appropriate value.
Digital Signature of the applicant in Form No. 1 on
the last page.
4. The PARTICULARS OF DIRECTORS, etc. in FORM NO.
32. This Form 32 can be filed either at the time of registration
of a company or within 30 days of incorporation.
Digital Signature of Applicant and Practicing CS, CA, CWA

5. NOTICE OF REGISTERED ADDRESS of the company in

FORM NO. 18 This Form can be filed either at the time of
registration of a company or within 30 days of incorporation.
Digital Signature of Applicant and Practicing CS, CA, CWA
6. POWER OF ATTORNEY signed by all the subscribers,
authorising one or more persons to act as their
representative(s) to make amendments and/or alterations in
memorandum and articles of association and other forms and
papers filed before ROC, for incorporation and also to collect
the certificate of incorporation.
Under the new MCA-E Governance System the soft copy of
all the above documents is to be filed electronically through
the MCA website.
The registration fees is paid through challan in the
authorised Bank or through credit card.

Submission of original paper in physical form: The original

duly stamped and signed memorandum and articles of
association should be submitted to RoC of the sate in which
the company is proposed to be incorporated, alongwith Form
No. 1, Form No. 18, Form No. 32 is sent.
 Form 1:
Application and
declaration for
incorporation of
Company
 Form 18:
Notice of
situation or
change of
situation of
registered office
 Form 32:
Particulars
relating to
Directors
In the case of a public company having share capital,
in addition to the above, written consent of all those
persons who have agreed to act as directors is
required to be given.

CERTIFICATE OF INCORPORATION: After

scrutinizing the documents and on being satisfied
that they are in order, the R.O.C. issues the
certificate of incorporation.
By post at the company’s registered office
Form 67 – Addendum of Documents
In case there are corrections in MOA & AOA, a
corrected copy has to be uploaded alongwith Form
67 with the Service Request Number (SRN) of
registration fees.
After this, the RoC will issue Certificate of
Incorporation.
The certificate of incorporation is conclusive as to all
the requirements of the Act with respect to
registration and matters precedent and incidental
thereto having been duly complied with.
Certificate of Incorporate
Raising of Capital Stage
Section 70 makes it obligatory for every public
company to take either of the following steps :-

1. Issue of a prospectus in case public is to be invited

to subscribe to its capital or

2. Deliver a statement in lieu of prospectus where

the company has either not issued a prospectus or
though it has issued a prospectus it has not
proceeded to allot any of the shares offered to the
public for subscription.
Commencement of
Business Stage
In order to commence its business and exercise its
borrowing powers a public company must procure a
certificate called the certificate to commence
business. In order to obtain this certificate the
company must comply with the provision of Section
149 of the Companies Act.
In the case of a company which has issued a
prospectus, the Registrar will grant the
certificate only when :-

a. the minimum subscription has been allotted.

b. the directors have taken up and paid for their

qualification shares.
c. no money is repayable to the applicants by reason of
failure to obtain stock exchange recognition for the shares,
when such recognition was promised.

d. a statutory declaration of compliance signed by the

Directors or the Secretary in the prescribed form. (Form No.
19) the clauses (a), (b) and (c) mentioned above have been
complied with.
Where the company has not issued a prospectus,section 149(2)
requires that it shall not commence business unless:

a. it has filed with Registrar a statement in lieu of prospectus.

b. the directors have taken up and paid for their qualification

shares.

c. there has been filed with the Registrar a duly verified

declaration by one of the directors or the secretary in the
prescribed form (Form no. 20) that clause (b) stated above has
been complied.