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Incorporation of a Company - Meaning, Steps, FAQs

The Incorporation of a company involves a number of well-defined steps, which demand careful attention to legal criteria. Continue Reading!
authorImageIzhar Ahmad27 Nov, 2023
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Incorporation of a Company - Meaning, Steps, FAQs

Incorporation of a Company: Before establishing their commercial activities, companies face a set of processes known as the "Incorporation of a Company." These legal steps are important and change for different companies. The process of incorporation of a company involves the formal steps taken to create a business organization. An established company is a separate legal body properly recognized by the law. In their names, such companies are often identified by terms like 'Inc' or 'Limited'.

Essential Requirements in the Incorporation of a Company

It is the responsibility of the applicant to guarantee that the chosen name for their entity:
  • Is distinct from the names of existing companies.
  • Is not considered undesirable.
  • Does not contain words or expressions requiring prior approval from the Central Government.
  • Aligns with the intended activities of the company.
The company must stick to the following:
  • Establish a registered office within thirty days of incorporation and maintain it consistently. This office should be capable of receiving and acknowledging all communications and notices.
  • Ensure that each subscriber/director possesses a Digital Signature Certificate if the number of subscribers/directors listed in the Memorandum of Association and Articles of Association is up to twenty.

Steps in Incorporation of a Company

In incorporation of a public company a group of seven or more individuals collaborates, while a private company only requires a minimum of two individuals. The incorporation of a company involves the following steps:

Determining Name Availability:

The initial step in incorporation of a company involves selecting a suitable name, as it serves as the company's identifier and is documented in the memorandum of association. For a public company, the name must conclude with 'Limited,' while for a private company, it should end with 'Private Limited.' To confirm the availability of the chosen name, the promoters must submit an application to the Registrar of Companies in the respective state. A fee of 500 rupees accompanies the application. Upon satisfaction of all legal documentation requirements within three months, the Registrar grants approval for the company to adopt the chosen name.

Memorandum of Association:

The Memorandum of Association holds great importance for a company, serving as a crucial document that explains the company's goals. It acts as a legal limit, restricting a company from participating in actions not defined within it. In line with Section 2(56) of The Companies Act 2013, "memorandum" refers to the original or modified document that describes a company's core. The Memorandum of Association consists of different articles, outlined as follows: (i) The name clause (ii)  Registered office clause (iii) Objects clause (iv) Liability clause (v) Capital clause

Articles of Association:

The Articles of Association serve as regulations governing the internal management of a company. These regulations are subordinate to the Memorandum of Association and must align with, rather than conflict or exceed, the provisions outlined in the Memorandum of Association. As per Section 2(5) of The Companies Act 2013, 'articles' refer to the company's original or amended rules, as well as those applied under previous company laws or the current Act. The prescribed forms for these articles are specified in Table F, G, H, I, and J in Schedule I, applicable to the respective company. Nevertheless, companies have the flexibility to create their own articles of association, deviating from the clauses in Table F, G, H, I, J. In such cases, the adopted articles of association by the company take precedence.

Authorization through Power of Attorney:

To navigate the intricate legal requirements involved in incorporating a company, the initiator may appoint an attorney. This designated individual will possess the power to represent and act on behalf of both the company and its initiators. The attorney will be empowered to amend the memorandum and articles, as well as other documents submitted to the registrar.

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Consent of Proposed Directors:

In addition to the Memorandum and Articles of Association, it is essential to obtain written consent from each individual designated as a director. This confirmation should express their willingness to serve in that role and commit to acquiring and paying for the required qualification shares, as specified in the Articles of Association.

Agreement:

The company must submit any proposed agreements with individuals considered for the positions of Managing Director, whole-time Director, or Manager to the registrar during the company registration process under the Act.

Statutory Declaration:

Alongside the above-mentioned documents, a declaration asserting compliance with all legal prerequisites for registration must be submitted to the Registrar. This statement can be endorsed by an advocate, a Chartered Accountant, a Cost Accountant, or a practicing Company Secretary involved in the company's formation. Additionally, a person named in the articles as a director, manager, or secretary of the company can also sign this declaration.

Receipt of Payment of Fee:

In addition to the above-mentioned paperwork, the necessary fees for the company's registration must be remitted. The specific amount of these fees is contingent upon the authorized share capital of the company.

Certificate of Incorporation:

The official recognition of incorporation of a company occurs on the date indicated on the Certificate of Incorporation. On this date, the company attains legal status as a distinct entity with continuous succession. It gains the right to engage in legitimate contractual agreements. The Certificate of Incorporation serves as irrefutable proof affirming the proper and lawful establishment of the company.
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Incorporation of a Company FAQs

What are the three stages of incorporation?

The three stages of incorporation are name approval, document submission, and obtaining the certificate of incorporation.

What is the rule 3 of Company incorporation?

Rule 3 of Companies Incorporation pertains to the regulations regarding the company's name and its conformity with legal requirements.

Who comes before the CEO?

The CEO comes before other executives, and the succession after the CEO depends on the company's organizational structure.

Who becomes the CEO of a company?

The CEO of a company is usually appointed by the board of directors.

Who is after the CEO in a company?

After the CEO, various executive roles like COO (Chief Operating Officer), CFO (Chief Financial Officer), and other C-suite executives may follow in a company's hierarchy.
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