Company Formation

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CA SANDEEP KHANDELWAL
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Company Incorporation and Management

In today’s dynamic world, businesses play a very crucial role in every society. Corporate structure is the most admired structure of the business and gets recognition in almost all the societies in the world. So, if you are looking to start a business and your vision is to create a credible business, incorporation of a company is a step in right direction.

Company’s formation in India is governed by the Companies Act, 2013. Registrars of Companies (ROC) appointed in various States and Union Territories under the Companies Act are vested with the primary duty of registering Companies and LLPs floated in the respective states and the Union Territories and ensuring that such companies and LLPs comply with statutory requirements under the Act. The Central Government through Ministry of Corporate Affairs exercises administrative control over these offices through the respective Regional Directors.

Types of Companies: Companies incorporated in India can broadly be classified in following two (2) categories depending upon their constitution: –

  • Private Limited Company: – A Private Limited Company is a business entity held by small group of people i.e. minimum 2 members. It Restricts maximum number of members to 200 and prohibits any invitation to the public to subscribe any shares, debenture or deposits and also put restrictions on freely transfer of its shares. This structure is most suitable for medium to large businesses, where control of the business is intended to restrict to fairly small number of members.

The Companies Act, 2013 has brought out a new class of company categorised as “One Person Business (OPC)” within the class of Private Limited Company. OPC is primarily a company with only one shareholder, who is a natural person and is Citizen of India. Promoter of OPC gets various benefits associated with OPC structure such as limited liability, corporate entity, low compliance etc. and hence may be considered as a viable option by the businessmen and entrepreneur, who are just starting a business and want a structure better than sole proprietorship.

  • Public Limited Company: – A Public Limited Company is most suitable to businesses of medium to large sizes, where comparatively large no. of members joins hands to share risk and rewards of the business. This structure allows access to public funds though is highly regulated and require to comply with stringent rules and is subjected to extensive disclosures requirement as compared to a private limited company.

These companies are subject to different laws and regulations depending on their type and size. They play a vital role in India’s economic growth and development by providing employment opportunities, contributing to the GDP and promoting innovation and entrepreneurship.

Besides aforesaid broad classification, companies can further be sub-classified in following micro categories depending upon: –

01.Domicile:

 

A. Depending upon the domicile, companies can be classified as: –

 

  • a. Domestic Company:It is a company that is incorporated under the Companies Act, 2013 and is headquartered in India.
  • b. Foreign Company:A foreign company in India refers to a business organization that is registered and headquartered outside India but conducts business activities within the country. These companies may establish a presence in India by setting up a branch office, liaison office, or Project Office.
02.Ownership:

 

B: Depending upon the domicile, companies can be classified as: –

 

a. Public Sector Enterprises: Public Sector Enterprises (PSEs) in India refer to companies that are owned and operated by the government. Public Sector Enterprises can further be classified as:

  1. Departmental undertakings e.g., Railways, Defence and Post & Telegraph
  2. Statutor[y Corporation e.g., RBI and Air India
  3. Government Company e.g. ONGC, BHEL

b. Other than Public Sector Enterprises: All other Companies which are not classified as Public Sector falls into this category

03.Control:

 

Depending upon the type of control the companies can be classified as:

 

  • Holding Company: A holding company in India is a company that holds a controlling interest in other companies or subsidiaries. It is a type of company that usually does not engage in the production of goods or services but rather invests in other companies.
  • Subsidiary Company: A subsidiary company in India is a company that is controlled by another company, referred to as the parent company or the holding company. The subsidiary company is a separate legal entity, and the parent company holds a majority of its shares, giving it control over the subsidiary’s operations and management.
  • Associate Company: An associate company in India is a company in which another company, referred to as the “investor company,” holds a significant but not controlling interest. Typically, an associate company is one in which the investor company holds between 20% to 50% of the total equity shares.
04.Liability:

 

Depending upon the type of liability assumed, the companies can be classified as:

 

a. Company Limited by Shares: A company limited by shares in India is a type of company in which the liability of its members is limited to the amount of shares they hold. This means that the shareholders’ personal assets are protected in case the company faces financial difficulties or gets sued.

b. Company Limited by Guarantee: A company limited by guarantee in India is a type of company in which the liability of its members is limited to the amount they agree to contribute to the company in case it is wound up. This means that the members of the company are not personally liable for any debts or obligations of the company beyond the amount of their guarantee.

c. Unlimited Liability Company: In India, there is no concept of an “unlimited liability company.” Instead, the closest equivalent would be a sole proprietorship or a partnership firm.

05.Access to Capital Market:

 

E. Depending upon the exposure to public and source of capital, the companies can be classified as:

 

a. Listed Company: In India, a listed company is a company whose shares are traded on a stock exchange that is recognized by the Securities and Exchange Board of India (SEBI).

b. Unlisted Company: In India, an unlisted company is a company that is not listed on any stock exchange that is recognized by the Securities and Exchange Board of India (SEBI). Unlike listed companies, the shares of unlisted companies are not publicly traded, and they are typically held by a smaller group of shareholders, such as the company’s founders, promoters, or private equity investors.

06.Size of the Company:

 

Depending upon the size and other notified criteria under the Companies Act, 2013, the companies can be classified as:

 

a. Small Company: In India, a small company is a type of company that is defined under the Companies Act, 2013. According to the Act, a company is considered a small company if it meets the following criteria:

  • It’s a private company or an unlisted public company
  • It’s paid-up share capital does not exceed Rs. 50 million (or such higher amount as may be prescribed by the government)
  • It’s turnover in the previous financial year does not exceed Rs. 250 million (or such higher amount as may be prescribed by the government)

b. Other than Small Company: According to the Act, a company shall be considered as a company Other than a small company if it doesn’t meet the criteria specified under the Companies Act, 2013 for a Small Company.

07.Objects of the Company:

 

Besides aforesaid classifications, depending upon the objects of the incorporated companies, some of the companies are classified as:

 

a. Nidhi Company: In India, Nidhi Company is a type of non-banking financial company (NBFC) that is regulated by the Ministry of Corporate Affairs (MCA). Nidhi companies are formed for the purpose of cultivating the habit of thrift and savings among their members and providing them with access to credit facilities. Nidhi companies are aimed at providing small savers with a safe and convenient option to save and access credit facilities. They are popular in rural and semi-urban areas of India where access to formal banking services is limited.

b. Chit-Fund Company: In India, a chit fund company is a type of financial institution that enables a group of people to pool their savings and bid for a specific amount of money each month. The company collects the bids and distributes the bid amount to one member every month, after deducting a commission.

c. Not for Profit (Section 8) Company: A type of company that is formed for charitable or non-profit purposes, which is registered under Section 8 of the Companies Act, 2013 in India. These companies are formed for promoting commerce, art, science, religion, charity, or any other useful object, and are not formed for the purpose of making profit. Section 8 companies in India are aimed at promoting various social, cultural and charitable objectives and are a popular form of non-profit organizations in the country and are exempt from certain regulatory requirements under the Companies Act.

d. Producer Company: A Producer Company in India is a type of company which is registered under the Companies Act, 2013 and is formed with the objective of carrying on certain activities related to primary production, such as farming, mining or fishing. The main objective of a Producer Company is to improve the standard of living of its members, who are all primary producers, by providing them with better marketing opportunities, and facilitating access to credit and technology. Producer Companies in India are aimed at promoting the economic interests of primary producers by providing them with better marketing opportunities, and facilitating access to credit and technology, and are a popular form of business organization in the agricultural and allied sectors.

How Can MNRS Help?
  • Speedy Formation of Private/Public Limited Company.
  • Drafting of memorandum and articles of association of companies.
  • Conversion of Private Limited Company into Public Limited Company or Public Limited Company into Private Limited Company.
  • Conversion of Proprietorship / Partnership into Company (Public or Private).
  • Change in the name, directors and stakeholders of the company.
  • Shifting of registered office from one place to another within the state or outside the state.
  • Alteration in objects of the company to change /undertake new business activities; increase/decrease in capital clause etc.
  • Assisting in holding of Statutory meeting and maintenance of statutory records.
  • Appointment of directors and fixation of their remuneration.
  • Creation of Holding and subsidiary company.
  • Assistance in ensuring Compliances of Inter corporate Deposits (ICDs) & External Commercial Borrowings (ECBs).
  • Amalgamation, merger and acquisition of companies.
  • Compliances of Payment of dividend and remittances thereof to the beneficiaries within and outside India.
  • Drafting and implementation of Scheme of Buy back of shares and ensuring related tax compliance
  • Filing of Tax Return of Company and its Directors / Employees

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