Legal Steps to Form a Company in India

It is not easy to start a business, not in India at least. Generally it takes about 89 days to start business as compared to 5 days in the US.  The lengthy list of legislations, licenses and permits, bureaucracy and red tape can have you in a tizzy. Well, thanks to the spirit of the Indian entrepreneur, he is able wade through difficult waters to finally get all approvals to start business. Here is a quick snapshot of all the necessary legal procedures that lead to formation of a company.

Companies in India can be set up as public or private. For a sole proprietor such as a designer or a lawyer, no registration or legal formality is required. The entrepreneur is merely required to obtain a license from the local administration related to his professional domain. On the other hand for a public or private company, there are a set of legal procedures leading to incorporation of the company. The various forms and applications for incorporation of the company can be filed online on the official website of the Ministry of Corporate Affairs.  

Step 1: Obtain Director’s Identification No.

Time Taken: 1 day

Cost to Complete: Rs.100

Directors of an Indian company have to register and get the identification number which is called Director Identification Number or DIN. It can be obtained by filing Application form DIN-1 online on www.mca.gov.in. The provisional DIN is immediately issued. All the documents are verified by the concerned authority and thereafter a permanent DIN is issued.  The entire process takes about 4 weeks.

Step 2: Obtain Digital Signature Certificate:

Time taken:  1-6 days

Cost to complete:  Rs.400 to Rs. 2650

Directors are also required to get Digital Signature Certificate or DSC. Digital Signature Certificate (DSC) is required for all Directors or authorized representatives of the company and professionals who will be required to sign ROC forms or documents. This certificate can be obtained from one of six private agencies authorized by MCA such as Tata Consultancy Services. Company directors submit the prescribed application form along with proof of identity and address. Each agency has its own fee structure, ranging from INR 400 to INR 2650.

Step 3: Registration of Company Name 

Time to complete: 2-3 days

Cost to complete: INR 500

The name of the company should be registered by the Registrar of Companies of the state where the registered office of the company will be located. The application should mention at least four names in order of preference. There should not be an existing company by the same name. Further, the last words in the name are required to be "Private Ltd." in the case of a private company and "Limited" in the case of a Public Company. The ROC generally informs the applicant within seven days from the date of submission of the application, about the availability of the desired name. After obtaining the name approval, it normally takes approximately two to three weeks to incorporate a company.

Step 4: Stamping of Company Documents

Time to complete: 1 day

Cost to complete: Rs. 1,300 which includes INR 200 for MOA + INR 1000 for AOA for every INR 500, 000 of share capital held by the company and also INR 100 for the stamp paper for declaration. 

The Memorandum of Association and Articles of Association are the most important documents to be submitted to the ROC for the purpose of incorporation of a company. The Memorandum of Association is a document that states the constitution of the company, objectives, scope of activities of the company and also defines the relationship of the company with the outside world. The Articles of Association contain the rules and regulations of the company for the management of its internal affairs. These documents should be stamped and submitted to the ROC along with relevant forms and registration fee.

Step 5: Get the Certificate of Incorporation

Time: 3 to 7 days

Cost: Rs.14, 133

The ROC scrutinizes the documents and, if necessary, instructs the authorised person to make necessary corrections. Thereafter, a Certificate of Incorporation is issued by the ROC, from which date the company comes into existence. It takes one to two weeks from the date of filing of the Memorandum of Association and Articles of Association to receive a Certificate of Incorporation. Although a private company can commence business immediately after receiving the certificate of incorporation, a public company cannot do so until it obtains a Certificate of Commencement of Business from the ROC.

Step 6: Make a Seal

Time: 1 day

Cost: INR 530(depends on the number of seals required and the time period of delivery)

Making a seal is not a legal requirement for the company. However a seal is required to issue share certificates and other documents. Cost depends on the number of words engraved and the time period of delivery.

Apart from the above procedures, one is also required to obtain the following documents from the concerned authorities. You can apply for these registrations simultaneously and they can be obtained at minimum or no charges. 

1. Permanent Account Number
2. Tax Account Number
3. Registration with Office of Inspector of Shops and Establishment Act.
4. Register for Value Added Tax (VAT)
5. Register for Profession Tax at the Profession Tax Office.
6. Registration with Employees Provident Fund Organisation
7. Registration for Medical Insurance at the Regional Office of the Employees State Insurance Corporation