Forming a corporate entity in India - an overview

Corporate entity formation

An Overview

A corporate entity in India is governed by provisions of The Companies Act 2013 (The Act). The Act permits primarily three kinds of Companies -
a) One Person Private Limited Company (OPC)
b) Private Limited Company
c) Public Limited Company

The basic differentiation between the above types of Company is as follows:

Particulars Type of Company
Public Private OPC
Minimum paid up capital Rs. 5 Lakhs Rs. 1 Lakhs Rs. 1 Lakhs
Maximum No. of Members Unlimited 200 1
Minimum No. of Directors 3 2 1
Mandatory Resident Director 1 1 1
Minimum No. of Subscribers 7 2 1
Nature of Person Subscriber Foreign National/Corporate allowed Foreign National/Corporate allowed Resident Individual only

All the above type of companies is with limited liabilities; owned by shareholders & governed by the Board of Directors. In case you wish to know more about the laws governing these companies & differences between the three,
kindly contact our Company law cell on : companies@kdpaccountants.com

Setting Up A Company In India

The procedure for the formation and registration of a company in India is as under for your understanding -

1. Obtaining Director Identification Number and Digital Signature Certificate:

The first step is to identify the Directors who will be part of the Board of the proposed Company and apply for its Director Identification Number (DIN) and Digital Signature Certificate (DSC). In case of foreign company planning to set up in India, it is vital to note that now it is mandatory to have at least 1 Resident Director.

2. Selection and Approval of name

The first step is to identify the Directors who will be part of the Board of the proposed Company and apply for its Director Identification Number (DIN) and Digital Signature Certificate (DSC). In case of foreign company planning to set up in India, it is vital to note that now it is mandatory to have at least 1 Resident Director.

3. Preparation of Memorandum and Articles of Association:

This stage will involve drafting of charter documents of the Indian Company and thereafter will have to be vetted and stamped by Registrar of Companies.

4. Filing of forms & Submission of Documents:

All the Forms with relevant documents will have to be filed with Registrar of Companies at this stage. The filing will involve filing of charter documents of the company, certified copy of approved name, appointment of initial Directors, notify the registered address, etc along with filing and registration fee.

5. Certification of Incorporation:

On the submission of the above documents, Registrar of Companies will issue a Certificate of Incorporation. This is the date of incorporation of the company.

6. Certificate of Commencement of Business:

Obtain a Certificate of Commencement of Business. This is the date from which a company can commence business in India within a period of 180 days from the date of incorporation.

7. Bank Account:

A bank account for the company can now be opened and the operations may start!

Statutory Information

Composition of Board of Directors:

In order to qualify for being appointed as a director, few provisions have to be carefully understood:

  • The directors should be of sound mind and solvent
  • The directors should not be convicted by Court for more than six months and if convicted, then a period of five years should have elapsed from the date of sentence
  • The proposed director should have honored payment of all calls on shares and should have not defaulted on the same.
  • The proposed director person should not be a director of more than twenty private companies in India and in case of public company not more than ten public companies.

Other Information:

  • Subscription and Allotment of shares should be greater than Minimum subscription. [Present limit - approx INR 100K for private company & INR 500k for public company]
  • Details of Issue of shares to members for consideration other than for cash is to be provided.
  • Details of different types of directors.
  • Full particulars of the nature and extent of the interest, if any, of every director or promoter.

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