Incorporation of Company: Everything You Need to Know

Incorporation of a Company refers to the legal process of forming a Company / Body Corporate / Foundation by registering it with the concerned government authorities.

The process involves complying with the laws, rules and regulations, which is laid down by the Companies Act, Securities and Exchange Board of India (SEBI), Foreign Exchange Management Act (FEMA), Reserve Bank of India (RBI) or any other Act, applicable on case to case basis, and obtaining the necessary approvals, licenses, and permits from the government authorities to start the business.

Incorporation of a Company provides a separate legal entity to the businesses, which means that the company is considered as a separate person under the law, distinct from its shareholders.

As the Company is considered as a separate person under the law, due to this characteristics, the Company is solely liable for its own debts and obligations, and not the shareholders.

The Shareholders gets protection because of Limited Liability concept. Limited liability is a legal concept that limits the liability of a company's shareholders or owners to the amount of capital they have invested in the company.

This provides limited liability protection to the shareholders, as the company is liable for its own debts and obligations, and not the shareholders.

Incorporation 101: A Beginner's Guide to Company Formation

Incorporation of Company - CS Yogesh Hegde

The process of incorporation involves many steps, including selecting the type of company, choosing the name of the company, obtaining the necessary approvals, preparing and filing the incorporation documents, and receiving the Certificate of Incorporation.

The process may differ depending on the type of company, the jurisdiction in which the Company is registered, and the applicable laws and regulations.

In India, the process of incorporation of a company is regulated by the Ministry of Corporate Affairs, and is governed by the Companies Act, 2013.

The process is mainly carried out online through the Ministry of Corporate Affairs (MCA) E-filing portal, and need to make payments of various fees and charges.

In summary, incorporation of a company is the process of legally forming a company / body corporate / Foundation by complying with the applicable laws and regulations, and obtaining the necessary approvals and licenses from various authorities.

It provides a separate legal entity to the business, and limited liability protection to the shareholders.

Types of Companies Which can be Incorporated?

In India, there are several types of companies that can be incorporated, each with its own characteristics, advantages, and disadvantages. Here is a detailed summary of the most common types of companies:

Private Limited Company: A private limited company is a company with limited liability that cannot raise capital from the public and has a minimum of two and a maximum of 200 shareholders.

It is a popular choice for small and medium-sized businesses and provides limited liability protection to its shareholders.

Public Limited Company: A public limited company is a company that can raise capital from the public and has a minimum of seven shareholders and no maximum limit.

It is a suitable choice for large businesses and can offer higher levels of liquidity and transparency.

One Person Company (OPC): A one person company is a company that allows a single person to own and manage a business with limited liability.

It is a popular choice for sole proprietors and provides limited liability protection to its shareholders.

Limited Liability Partnership (LLP): An LLP is a partnership in which the partners have limited liability and the business is governed by an agreement between the partners.

It is a popular choice for professionals, such as Company Secretaries, Lawyers, Accountants, and so on and provides limited liability protection to its partners.

Section 8 Company: A section 8 company is a non-profit company that is formed for promoting social welfare, art, education, charity, religion, environment protection, or any other non-profit objective.

It is a suitable choice for organizations that are formed for charitable purposes.

Producer Company: A producer company is a company formed by farmers, producers, or individuals involved in handloom, handicrafts, or any other cottage industry.

It is a popular choice for small and medium-sized businesses that are involved in agriculture and rural industries.

Nidhi Company: A Nidhi Company is a type of non-banking financial company (NBFC) that is formed for the sole purpose of accepting deposits and lending money to its members.

It is popular in India as a form of small savings and credit, particularly in rural areas.

Micro, Small, and Medium Enterprises (MSME): MSMEs are small and medium-sized businesses that are registered under the MSMED Act, 2006, and are eligible for various benefits from the government.

They are suitable for businesses that are involved in manufacturing, services, or trade and provide special benefits to help them grow and compete in the market.

Sole Proprietorship: A sole proprietorship is a type of unregistered business owned and managed by a single person with unlimited liability.

It is a simple and cost-effective way to start a business, but provides no limited liability protection to the owner.

The choice of company type depends on several factors such as the size of the business, the number of shareholders, the nature of the business, the level of liability protection required, and the objectives of the company.