Company Registration in India
A business enterprise, whether small/medium/large, is an economic institution engaged in the business of goods and/or services with the object of sustaining continuously and earning profits. There are various forms in which a business may be organized and each form has its own merits and demerits. The ultimate choice of the form of business depends upon balancing the merits and demerits of the various forms of business. It is very important to make correct choice of the form of business since this will determine the risk, responsibility, power and control of the entrepreneur as also the division of profits and losses.
The choice of form of business is governed by factors such as nature of business, scale of operations, degree of control desired by the owner, capital requirement, volume of risk, comparative tax liability, legal environment and many other factors.
In India, company is the most prevalent form of business owing to well defined legal process with respect to establishment and running of company. In India, Companies Act, 1956 regulates the formation, functioning and winding up of companies. This Act applies to the whole of India and to all types of companies, whether registered under this Act or earlier Act.
Now the most important question arises ‘what is a company’?
Company is a voluntary association of persons formed for the purpose of doing business, having a distinct name and limited liability.
As per the Companies Act, 1956, ‘company’ includes:
- Company formed and registered under the Act
- An existing company i.e. a company formed or registered under any of the previous company laws.
- Company is not a citizen. Hence, it cannot claim fundamental rights granted to citizens.
Characteristics of a company :
- Company is an artificial legal person
- Company is a separate legal entity
- It is an incorporated body
- It has limited liability
- It has perpetual succession
- Company has a common seal of its own
- Company has right to own property
- Company has right to sue
- Company has right to enter into contracts
- In a company, there is separation of control from ownership
Advantages of a company over other forms of business organizations :
- A company is a distinct legal entity and is independent of its members
- The members of a company have limited liability
- The members are not personally liable for any act or omission on the part of the company, unless the law expressly provides otherwise.
- The company can acquire, own, enjoy and alienate property in its own name.
- The company can sue and also be sued in its own name.
- The continuity and functioning of the company is not affected by the death, disability or retirement of any of its members.
- The members can easily transfer their interest in the company.
- The members of the company share the profit earned by company by way of dividend and the company’s assets in the event of its winding up (in proportion of their respective capital contributions)
- Shares of small denomination afford an opportunity to the small investors to invest according to their capacity.
- Increased investment in the company’s funds is further ensured by permitting large number of persons to subscribe to the company’s shares.
- Incorporation of company provides better borrowing facilities as the company can raise large amount, on comparatively easier terms, by issue of debentures, especially those secured by a floating charge or by accepting deposits from the public. Even banking and financial institutions prefer to render financial assistance to incorporated companies.
- In certain cases, an incorporated company comparatively stands in a better position from the point of view of taxation on its income.
- Once the company is brought in to existence on its incorporation, it can only be dissolved with the provisions of the law.
Types of companies:
There are mainly three types of companies
Private limited company
- Minimum paid up share capital Rupees one lac
- Maximum 50 members
- Restriction on transfer of shares
- Restriction on invitation for public subscription
- Acceptance of deposits from persons other than its members, directors or their relatives prohibited
Public limited company
Important regulatory authorities for
investment in india
- Secretariat for Industrial Assistance (SIA)
- Foreign Investment Promotion Board (FIPB)
- The Foreign Investment Implementation Authority (FIIA)
- Reserve Bank of India (RBI)
- Registrar of Companies (RoC)