This article has been written by Ritika Goel, a 2nd year LLB student from Faculty of Law- Delhi University.

Introduction

The word ‘Company’ has a strict legal meaning according to the provisions of the Companies Act of 2013, a company refers to a company formed and registered under the Companies Act. In common law, a company is a “legal person” or a “legal entity” which is separate and capable of surviving beyond the lives of its members. Incorporation of a company refers to the setting up of a company according to the provisions laid out in the Companies Act of 2013. This article deals with the process of incorporation of a Company, the advantages that an incorporated company would have over the Non-Incorporated Companies and also the disadvantages of Incorporation of a Company.

Formation of a Company

Section 3 of the Companies Act, 2013, details the basic requirements of forming a company as follows:

• Formation of a public company involves 7 or more people who subscribe their names to the memorandum and register the company for any lawful purpose.
• Similarly, 2 or more people can form a private company.
• One person can form a One-person company.

Registration or Incorporation of a Company

Section 7 of the Companies Act, 2013, details the procedure for incorporation of a company. Here is the procedure:

• Filing of company registration papers with the registrar

To incorporate a company, the subscriber has to file the following company registration papers with the registrar within whose jurisdiction the location of the registered office of the proposed company falls.

1. The Memorandum and Articles of the company. All subscribers have to sign on the memorandum.
2. The person who is engaged in the formation of the company has to give a declaration regarding compliance of all the requirements and rules of the Act. A person named in the Articles also has to sign the declaration.
3. Each subscriber to the Memorandum and individuals named as first directors in the Articles should submit an affidavit with the following details:
   1. Declaration regarding non-conviction of any offence with respect to the formation, promotion, or management of any company.
   2. He has not been found guilty of fraud or any breach of duty to any company in the last five years.
   3. The documents filed with the registrar are complete and true to the best of his knowledge.
4. Address for correspondence until the registered office is set-up.
5. If the subscriber to the Memorandum is an individual, then he needs to provide his full name, residential address, and nationality along with a proof of identity. If the subscriber is a body corporate, then prescribed documents need to be provided.
6. Individuals mentioned as subscribers to the Memorandum in the Articles need to provide the details specified in the point above along with the Director Identification Number.
7. The individuals mentioned as first directors of the company in the Articles must provide particulars of interests in other firms or bodies corporate along with their consent to act as directors of the company as per the prescribed form and manner.

• Issuing the Certificate of Incorporation

Once the Registrar receives the information and company registration papers, he registers all information and documents and issues a Certificate of Incorporation in the prescribed form.

• Corporate Identity Number (CIN)

The Registrar also allocates a Corporate Identity Number (CIN) to the company which is a distinct identity for the company. The allotment of CIN is on and from the company’s incorporation date. The certificate carries this date.

• Maintaining copies of Company registration papers

The company must maintain copies of all information and documents until dissolution.

Registration of Company

1. When a company is registered in pursuance of this Part, sub-sections (2) to (7) shall apply. All provisions contained in any Act of Parliament or any other law for the time being in force, or other instrument constituting or regulating the company, including, in the case of a company registered as a company limited by guarantee, the resolution declaring the amount of the guarantee, shall be deemed to be conditions and regulations of the company, in the same manner and with the same incidents as if so much thereof as would, if the company had been formed under this Act, have been required to be inserted in the memorandum, were contained in a registered memorandum, and the residue thereof were contained in registered articles.
2. All the provisions of this Act shall apply to the company and the members, contributories and creditors thereof, in the same manner in all respects as if it had been formed under this Act, subject as follows: —
   1. the provisions of this Act relating to the numbering of shares shall not apply to any company whose shares are not numbered;
   2. in the event of the company being wound up, every person shall be a contributory, in respect of the debts and liabilities of the company contracted before registration, who is liable to pay or contribute to the payment of any debt or liability of the company contracted before registration, or to pay or contribute to the payment of any sum for the adjustment of the rights of the members among themselves in respect of any such debt or liability, or to pay or contribute to the payment of the costs, charges and expenses of winding up the company, so far as relates to such debts or liabilities as aforesaid;
   3. in the event of the company being wound up, every contributory shall be liable to contribute to the assets of the company, in the course of the winding up, all sums due from him in respect of any such liability as aforesaid; and in the event of the death or insolvency of any contributory, the provisions of this Act with respect to the legal representatives of deceased contributories, or with respect to the assignees of insolvent contributories, as the case may be, shall apply.

Effect of Registration of a Company

According to Section 9 of the Companies Act, 2013, these are the effects of registration of a company:

1. Separate Legal Identity

Once a business is incorporated, it becomes a separate legal identity. An incorporated company, unlike a partnership firm which has no identity of its own, has a separate legal identity of its own which is independent of its shareholders and its members. The companies can thus own properties in their name, become signatories to contracts etc.

According to Section 34(2) of the Companies Act, 2013, upon the issue of the certificate of incorporation (which will be talked about later in the article), the subscribers to the memorandum and other persons, who may from time to time be the members of the company, shall be a body corporate capable of exercising all the functions of an incorporated company having perpetual succession. Thus the company becomes a body corporate which is capable of immediately functioning as an incorporated individual.

1. Perpetual Succession

The term perpetual succession means that the longevity of the company does not depend on its members or their financial status. Even if all the members of the company go bankrupt or all of them die, the company will not dissolve on its own unless it is made to dissolve on grounds which are laid out in the act.

1. Capacity to Sue

An incorporated company is also vested with the power of suing individuals and other companies in its name.

1. Transferable Shares

According to Section 82 of the Companies Act of 2013, the shares of a company are deemed to be movable and transferrable in the manner provided by the articles of the company. This enables the member to sell his shares in the open market and to get back his investment without having to withdraw money from the company. This provides liquidity to the investor and the stability of the company. In a partnership, on the other hand, a partner cannot transfer his share in the capital of the firm except with the unanimous consent of all the partners.

1. Flexibility

Every company has complete independence to form policies suited to their organisation provided they do not violate general principles of law and equity.

1. Limited Liability

The company being a separate entity, leading its own existence, its members are not liable for its debts. The liability of the members is limited to his or her share in the company and the liability ends there. No one is bound to pay more than what he has put in.

CONCLUSION-

While concluding this article, it can be said that the Incorporation of a company thus has its own pros and cons. Incorporation greatly depends on the needs of the business, if the members perceive the business as scalable then the high incorporation costs are completely justified.

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