Steve Jobs once said that “great things in business are never done by one person. They are done by a team of people.” It’s his way of saying that a company is the favourable type of business entity that can help a business grow and succeed.
Technically a Company is defined as a type of business entity where its members or shareholders share a limited liability according to their shareholding within the Company.
There are two main types of Companies:
- A Private Limited Company
- A Public Limited Company
Before getting into the details of how to form a Company, lets first get to know the benefits of forming a Company. The advantages will strengthen the discussion to opt for a Company as a type of business entity over the others.
- A Company is a well structured organisation unlike a partnership or sole proprietorship or other types of business entities.
- A Company is a separate legal entity that has its own identity and independent existence apart from its members.
- The liabilities of the members of a Company are limited to the extent of their shareholding within the Company. Thus the members do not have unlimited liability which can sometimes be a burden.
- A Company can raise capital for the operation of its business or for expansion or any other requirement by issuing shares to its members. This helps raise funds quickly unlike in a partnership or in a sole proprietorship.
- The transfer of shares within a Company, amongst its shareholders is easy too.
- The existence of a Company is perpetual even if its members or directors leave the Company or expire, the Company still remains.
- When issuing large and complex projects, clients prefer a Company to handle the project over other types of entities and organisational structures.
- Banks and other lending institutions prefer lending to a Company over lending to a business entity that is not registered such as a sole proprietorship or a non registered partnership.
These benefits make a Company a preferred choice of an entity while starting a business.
Forming A Company
The first step before starting the process of registering a Company is to be aware of all the company incorporation documents and get them in place before the actual registration process. Some of the documents include
- Address proof and identity proof of the directors and shareholders which is an Aadhar Card and PAN card
- Address proof of the registered office of the Company
The steps involved in the formation of a Company include-
- Obtaining the Director’s Identification Number or DIN
- Obtaining Digital Signature Certificate or DSC
- Registering of the Company name
- Stamping of the Company documents
- Getting the Certificate of Incorporation
The procedure for forming and incorporating a Company involves filling out and filing e-forms present of the Ministry of Corporate Affairs or MCA’s website.
Step 1 – It involves the directors of the Company having to get themselves registered and obtain a Director’s Identification Number or a DIN.
Step 2 – It involves obtaining a Digital Signature Certificate or a DSC by the directors or authorised representatives of the Company.
Step 3 – This step involves registering the name of the Company with the Registrar of Companies, taking care that the proposed name is not already present. For reserving and approval of proposed name a form needs to be filed through RUN (Reserve Unique Name) service available on MCA website. Also the name of a Private Limited Company must end with “ Private Limited or Pvt Ltd” while the name of a Public Limited Company must end with “Limited or Ltd” while naming the Company.
Step 4 – This involves the submission of documents for the incorporation of the Company. The important documents include Memorandum of Association and Articles of Association. Additionally, another form is also filed named SPICE Form which stands for Simplified Proforma for Incorporating Company Electronically.
Step 5- This step involves the scrutinising o the documents by the Authorities after which they might ask for corrections, post which the Company Certificate of Incorporation is issued.
This entire process takes approximately 15 to 20 days to obtain the Certificate of Incorporation. At the end of the submission process, the Company formed gets the following documents of Incorporation-
- The filed Incorporation forms
- The Certificate of Incorporation
- The Memorandum and Articles of Association
These, in brief, are the basic steps involved in the formation of a Company.