A private Company can be formed either by
i. incorporation of a new company for doing a new business , or
ii. conversion of existing business of a sole proprietory concern or partnership firm into a company.
A sole proprietory or partnership business can be converted into a company in any of the following ways: 1. By outright sale of the business as a going concern. It may be a block sale where the following takes over all the assets and liabilities of the firm or it may be partial take over of certain assets and liabilities. The consideration may be based on itemized sale or it may be on slump sale basis. 2. A company becoming a partner of the firm which will be dissolved thereafter by making partners of the firms the only shareholders of the newly incorporated company for which the following steps should be taken: (i) Form a private company as per the procedure. (ii) The proprietor of the existing business alongwith some other persons (generally, family members and friends) or the partners of the existing firms, are the subscribers to the Company Memorandum of Association (iii) Make the newly formed company a partner with the sole-proprietor or the partners of the existing business. For this purpose a fresh partnership deed is to be executed. (iv) Make a provision in the new partnership deed for the transfer of all assets and liabilities of the firm to any one of the partners who will pay off to the other partners. (v) Dissolve the partnership with the whole business going to the company as the sole continuing partner. (vi) Every other partner of the firm (or the proprietor) gets shares in the company in lieu of his interest in the firm on dissolution. PRELIMINARIES - PROMOTERS / REGISTERED OFFICE PROMOTION The promotion of a company comprises of the preliminary preparatory steps leading to its incorporation. A promoter is a person who brings about the incorporation and organization of a corporation. He brings together the persons who become interested in the enterprise, aids in procuring subscribes and sets in motion the machinery which leads to the formation itself. Who can be a Promoter? Any person who is capable of entering into a contract can be a promoter. Minor, undischarged insolvent, a non-resident without the general or special permission of the Reserve Bank of India, partnership firm, HUF and persons working in professional capacity cannot be promoter. REGISTERED OFFICE The promoters have to take an important decision as to the place of registered office of the proposed company. The name of the state has to be specified in the application for availability of name in Form 1-A and in the Memorandum also. The application in Form 1-A and other documents of registration shall then be field with the Registrar of Companies having territorial jurisdiction over that state. The exact location of the registered office should be informed to the Register in Form 18, within 30 days of incorporation of the company. NAME The name of a corporation is the symbol of its personal existence. Any suitable name may be selected subject, however, to the following instructions: i. No company can be registered with a name which in the opinion of the Central Government is undesirable. ii. The name of the company should not be identical with or should not too nearly resemble, the name of another registered company, for such name may be declared undesirable by the Central Government. iii. Whatever be the name of the company if the liability of the members is limited the last word of the name must be Ã¢€ËœLimitedÃ¢€â„¢ and in the case of a private company Ã¢€ËœPrivate LimitedÃ¢€â„¢ iv. Name of the Company must be printed on the outside of every place where the business of the company is carried on. Such name including the address of the registered office, must also be mentioned on all business letters and other official publications, on all negotiable instruments issued or endorsed by the company and on all other orders, receipts, etc. Application for Availability of Name Ã¢€Â¢ The promoters should select three to five alternative names, quite distinct from each other. Ã¢€Â¢ The names should suggest, as far as possible, the main objects of the proposed company. Ã¢€Â¢ The names should not too closely resemble with the name of any other registered company. Ã¢€Â¢ The official guidelines issued by the Central Government should be followed while selecting the names. Besides, the names so selected should not violate the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950. Ã¢€Â¢ The Deptt. Of Company Affairs has advised the ROCs to make arrangements for allowing the promoters and their representatives to ascertain the availability of proposed names. This will ensure that the names applied for would be made available promptly when an application for this purpose is made subsequently by the promoters Ã¢€Â¢ Apply in form 1-A to the Registrar of Companies have jurisdiction alongwith a filing fee of Rs. 500, to ascertain which of the selected names is available .The fee can be deposited in cash at the counter of the office of the Registrar or by postal order. Company to be Registered within 6 Months of Approval of the Name Ã¢€Â¢ After scrutiny of the application for availability of name and finding no objection to the proposed name, the Register of Companies informs the promoters to the incorporation of company by that name within 7 days of receipt of application. Ã¢€Â¢ The promoters should complete all other formalities for registration within 6 months from the date of approval of name by Registrar. Ã¢€Â¢ Various documents required for the registration of company must be filed sufficiently well before the period of six months so that the company obtains the certificate of incorporation on a date which is within 6 months of approval of name, after these documents are vetted by ROC. Ã¢€Â¢ If, for any reason the formalities cannot be completed, the promoters should apply for revalidation of name by filling Form 1A afresh alongwith a request letter on plain paper stating the reason together with a fee of Rs. 500 giving complete reference to the letter of the Registrar. Ã¢€Â¢ If none of the names suggested is available, the promoters should apply again selecting fresh names, or removing the objections raised, within a period of one month from the date of the letter. Ã¢€Â¢ If no action is taken within this period, on the rejection of the name, name availability application is to be made afresh alongwith a fee of Rs. 500 . The promoters may, however, make representation the RegistrarÃ¢€â„¢s refusal to the following authorities: List of Authorities to Whom Representation against Refusal of Name can be made with Addresses/Jurisdiction Address Jurisdiction Central Government Ã¢€Â¢ Secretary Department of Company Affairs, Shastri Bhawan, 5th floor,Ã¢€â„¢AÃ¢€â„¢ Wing, Dr. Rajendra Prasad Road New delhi-110 001 Regional Directors Ã¢€Â¢ Regional Director, Eastern Region Nizam Palace, II M.S.O Building, 3rd Floor, 234/4 Acharya Jagdish Chandra Bose Road ,Calcutta Ã¢€"700 020 Ã¢€Â¢ Regional Director, Northern Region, 10/499-B, Allenganj ,Khalasi Line, Kanpur-208 001 Ã¢€Â¢ Regional Director, Southern Region, 5th floor, Shastri Bhawan, 26, Haddows Road Chennai- 600 006 Ã¢€Â¢ Regional Director, Western Region, Ã¢€Å“EverestÃ¢€Â, 5th floor, 100, Netaji Subhash Road Mumbai Ã¢€" 400 002 Overall West Bengal, Orissa, Bihar, Assam, Tripura, Manipur, Nagaland, Mizoram, Arunachal Pradesh. Delhi, Haryana, Uttar Pradesh, Punjab, Himachal Pradesh,,Chandigarh,Rajasthan, Jammu & Kashmir Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, Pondicherry Maharashtra, Gujarat, Goa, Daman & Diu, DOCUMENTS REQUIRED FOR INCORPORATION After obtaining RegistrarÃ¢€â„¢s approval for the companyÃ¢€â„¢s name, the promoters should prepare the following documents, in the prescribed manner and form: i. Memorandum of Association ii. Articles of Association iii. Prospectus /Statement in lieu of prospectus is not requires in case of a private company iv. Copy of import agreements. v. Statutory declaration in Form I vi. Copy of Letter of Register indicating approval of name. vii. Power of Attorney. viii. Notice of situation of registered office (in Form 18) and particulars of Directors (in Form 32). These two forms can be field either at the time of incorporation or within 30 days form the date of incorporation. Ã¢€Â¢ The documents should be duly executed signed and stamped from the date of approval of name by the Registrar. Ã¢€Â¢ It is to be ensured that subscribers to the Memorandum and Articles of Association of the proposed company are same as the promoters whose names are appearing in the application for availability of name. In the case of a change, the changed subscribers will be asked to make a fresh application for availability of name. The ROC may allow the same name, if available after six month from the date when the name was allowed to the original promoter. REGISTRATION OF COMPANY AND ISSUE OF CAPITAL Registering Authorities The list of the offices of the Registrar of the Companies is given below Documents of Registration After completion of the preliminaries as enumerated, the following documents are required to be filed with the Registrar of Companies of the State in which the company is proposed to be incorporated. (1) Memorandum of Association (duly stamped) and a duplicate thereof. (2) Articles of Association (duly stamped) and a duplicate thereof (3) The agreement, if any, which the company proposes to enter into with any individual for appointments as its managing or whole time director or manager. (4) A copy of the agreement, if any, referred to in the articles (5) A power of Attorney, if any (with prescribed stamps) (6) A copy of the letter of the Registrar of Companies intimating the availability of the proper name (7) Form No.1 (with prescribed stamps) (8) Form No.18, if desired (9) Form No. 32 (in duplicate), if desired (10) Documents evidencing payment of prescribed registration and filing fee, i.e. a bank draft or a treasury challan. (11) The promoters, as being the subscribers to the Memorandum and Articles should be the same person whose names are appearing in the original application for availability of name (Form 1A). If the names have changed, ROC will not register the company until and unless, the name is got re-validated with the new subscribers as applicants, by paying another fee of Rs. 500. Registration fee Ã¢€Â¢ The amount of registration fee payable is regulated with reference to the amount of authorized capital of the proposed company. Ã¢€Â¢ The maximum registration fee is Rs. 2,00,04,000. Ã¢€Â¢ The fee for registration of companies has been revised w.e.f 1.5.2000.The registration fee for a company will be as prevailing on the date of its actual registration and accordingly, the revised fee affective from 1.5.2000 will be applicable in respect of the companies registered on or after that date. Ã¢€Â¢ If the authorized capital is increased subsequently, the company shall be liable to pay additional registration fee, i.e. the difference between the registration fee payable on the increased authorized capital (subject to the maximum limit of Rs. 2,00,04,000) and the fee already paid. REGISTRATION FEE PAYABLE TO REGISTRAR OFCOMPANIES BY COMPANY HAVING SHARE CAPITAL Authorised Capital Registration Fee on Memorandum of Associaion Rs. Authorised Capital Registration Fee on Memorandum of Associaion Rs. 1,00,000 4,000 1,50,000 5,500 2,00,000 7,000 2,50,000 8,500 3,00,000 10,000 3,50,000 11,500 4,00,000 13,000 4,50,000 14,500 5,00,000 16,000 5,50,000 17,000 6,00,000 18,000 6,50,000 19,000 7,00,000 20,000 7,50,000 21,000 8,00,000 22,000 8,50,000 23,000 9,00,000 24,000 9,50,000 25,000 10,00,000 26,000 15,00,000 36,000 20,00,000 46,000 25,00,000 56,000 30,00,000 66,000 35,00,000 76,000 40,00,000 86,000 45,00,000 96,000 50,00,000 1,06,000 55,00,000 1,11,000 60,00,000 1,16,000 65,00,000 1,21,000 70,00,000 1,26,000 75,00,000 1,31,000 80,00,000 1,36,000 85,00,000 1,41,000 90,00,000 1,46,000 95,00,000 1,51,000 1,00,00,000 1,56,000 1,50,00,000 1,81,000 2,00,00,000 2,06,000 250,00,000 2,31,000 3,00,00,000 2,56,000 3,50,00,000 2,81,000 4,00,00,000 3,06,000 4,50,00,000 3,31,000 5,00,00,000 3,56,000 6,00,00,000 4,06,000 7,00,00,000 4,56,000 8,00,00,000 5,06,000 9,00,00,000 5.56,000 10,00,00,000 6,06,000 The above fee is calculated as per following Schedule: Authorised Capital Fee Payable Upto Rs.1,00,000 Between Rs. 1,00,001 to Rs. 5,00,000 Between Rs. 5,00,001 to Rs. 50,00,000 Between Rs. 50,00,001 to 1 crore Above Rs. 1 Crore Rs. 4,000 Rs. 4,000 plus Rs 300 for every Rs. 10,000 or part after first Rs. 1,00,000 upto Rs. 5,00,000 Rs. 16,000 plus Rs. 200 for every Rs.10,000 or part after first Rs. 5,00,000 upto Rs. 50,00,000 Rs. 1,06,000 plus Rs. 100 for every Rs. 10,000 or part after first Rs. 50,00,000 upto Rs. 1 crore Rs. 1,56,000 plus Rs. 50 for every Rs. 10,000 or part after first Rs. 1 crore Note: Maximum fee is Rs. 2,00,04,000 Processing of Documents Ã¢€Â¢ If the Registrar is satisfied that all the requirements have been complied with by the company, as per the Companies Act and the Rules framed thereunder; documents bear proper stamp duty and the conditions imposed by any other law for the time being in force, are also fulfilled, the Registrar will register the company. Ã¢€Â¢ If any defect is found by the Registrar of Companies in the documents the same will have to be rectified by the applicant and authenticated by the signature (s) of a person authorized to de so. Ã¢€Â¢ A form or documents would be defective for any one of the following reason , viz. d. The form or documents does not contain the necessary enclosures; e. The documents is not properly signed or certified; f. Certain particulars have not bee filled up; g. Certain particulars are apparently believed to be false; h. Not accompanied by the requisite filing fee; i. Not filed in proper time. Improper refusal by Registrar Ã¢€Â¢ The Registrar cannot refuse registration of a company if all the condition for Registration of the company as prescribed by Section 33 of the Act are complied with. Ã¢€Â¢ If the registrar improperly refuses to register a company a writ of mandamus may be filed in the Court Law. Certificate of Incorporation Ã¢€Â¢ When the registrar decides to register a company it issues a Certificate of Incorporation of Company which is conclusive evidence as regards the compliance with the requirements of the Act in regards to registration of company and the matter precedent or incidental thereto. Ã¢€Â¢ The date mentioned in this certificate of incorporation is the date of incorporation of the company. Ã¢€Â¢ It brings the company into existence as a legal person. ISSUE OF SHARE CAPITAL After obtaining registration, the company proceeds with its business for which it requires funds. A private company cannot raise funds from the public; the capital is to be raised by way of private arrangements viz. from among the family members, relatives and friends, But first of all the company will issue shares to the subscribers to its memorandum and other members of the company. The issued capital must not exceed the authorized capital of the company. If a company wants to issue capital more than its authorized capital, it has to first raise, its authorized capital by passing a special/ordinary resolution (as prescribed in the Articles) and applying in Form No. 5-alongwith additional registration fee, before the ROC. Types ofShares A company may issue following types of Shares- a. Equity shares b. Preference shares According to Section 90(2), a private company which is not a subsidiary of a public company may issue shares of such other kind as it may think fit. Similarly a private company shall be free to issue shares with disproportionate voting rights.