Steps in Incorporation of a Company

A group of seven or more people can come together so as to form a public company whereas, only
two are needed to form a private company.

The following steps are involved in the incorporation of a company.

1. Ascertaining Availability of Name and choosing a name:

The first step in the incorporation of any company is to choose an appropriate name. A company is
identified through the name it registers. The name of the company is stated in the memorandum of
association of the company. The company’s name must end with ‘Limited’ if it’s a public
company and ‘Private Limited’ if it’s a private company.

To check whether the chosen name is available for adoption, the promoters have to write an
application to the Registrar of Companies of the State. A 500 rupee is paid with the application. The
Registrar then allows the company to adopt the name given they fulfill all legal documentation
formalities within a period of three months.

2. Preparation of Memorandum of Association and Articles of Association

The memorandum of association of a company can be referred to as its constitution or rulebook.

1. Name Clause

2. Registered Office Clause

3. Objects Clause

4. Liability Clause 

5. Capital Clause 

Articles of Association is basically a document that states rules which the internal management of
the company will follow. The article creates a contract between the company and its members. The
article mentions the rights, duties, and liabilities of the members. It is equally binding on all the
members of the company.

3. Printing, Signing and Stamping, Vetting of Memorandum and Articles

The Registrar of Companies often helps promoters to draw up and draft the memorandum and
articles of association. Above all, with promoters who have no previous experience in drafting the
memorandum and articles.

Once these have been vetted by the Registrar of Companies, then the memorandum of association
and articles of association can be printed. The memorandum and articles are consequently divided
into paragraphs and arranged chronologically.
The articles have to be individually signed by each subscriber or their representative in the presence
of a witness, otherwise, it will not be valid.

4. Power of Attorney

To fulfill the legal and complex documentation formalities of incorporation of a company, the
promoter may then employ an attorney who will have the authority to act on behalf of the company
and its promoters. The attorney will have the authority to make changes in the memorandum and
articles and moreover, other documents that have been filed with the registrar.

5. Other Documents to be Filed with the Registrar of Companies

The First –      e-Form No.32 – Consent of directors

The Second – e-Form No.18 – Notice of Registered Address

The Third –    e-Form No.32. – Particulars of Directors

6. Statutory Declaration in e-Form No.1

This declaration, furthermore states that ‘All the requirements of the Companies Act and the rules
thereunder have been compiled with respect of and matters precedent and incidental thereto.’

7. Payment of Registration Fees

A prescribed fee is to be paid to the Registrar of Companies during the course of incorporation. It
depends on the nominal capital of the companies which also have share capital.

8. Certificate of Incorporation

If the Registrar is completely satisfied that all requirements have been fulfilled by the company that
is being incorporated, then he will register the company and issue a certificate of incorporation. As a
result, the incorporation certificate provided by the Registrar is definite proof that all requirements
of the Act have been met.

9. Certificate of commencement

Under the newly introduced Companies (Amendment) Ordinance 2018, all companies registered in

 ‘Commencement of Business’ this concept was there in the erstwhile Companies Act, 1956 and it
was also introduced by the Companies Act, 2013 under the Section 11 of the  Companies Act, 2013.
However, section 11 was omitted (deleted) LATER ON by the companies (Amendment) Act, 2015
w.e.f. 29th May 2015.
Form 20A is a declaration filed by the directors within 180 days of the date of incorporation of the
company. This is one of the most important compliances to follow as the penalties for non-filing is
extremely high.

Companies which are not required to file Form 20A

The following companies are not required to file form 20A:

 Companies incorporated before 2 November 2018 ( i.e before the commencement of the
Companies ( Amendment) Ordinance, 2018).

 Companies incorporated after 2nd November 2018 without share capital.

The time period for filing Form 20A

Every company required to file form 20A shall file the same within 180 days of its incorporation.

Requirement and procedure

A certificate of business commencement has to be obtained within 180 days from the date of
incorporation and an eForm has to be filed with the concerned ROC (Registrar Of Companies)
regarding the same. A declaration under section 10A from the directors has to be provided in the
form of a Board Resolution in the eForm itself. In addition to this, a proof of deposit of the paid-up
share capital by the subscribers also needs to be attached in the eForm.

The eForm has to be verified and certified by a practising professional before filing with the ROC
(Registrar Of Companies).

Penalties for Default

The penalties for non-compliance are very high which has been done intentionally so as to curb out
the number of shell companies incorporated. Following are the penalties for non-compliance:

 Penalty to be levied on the company: A penalty of Rs 50,000 will be levied on the company if
it fails to comply with the mentioned requirement.

 Penalty to be levied on the officers: Every such officer in default shall be liable to a penalty of
Rs 1,000 per day for each day during which the default continues subject to a maximum of
Rs 1,00,000.

 Company strike-off: If the Registrar has reasonable grounds to believe that the company is
not carrying on any business or operations even after 180 days of incorporation, the
registrar may remove the name of the company from the Register of companies.

After getting the Certificate of Incorporation:

(i) A public company issues a prospectus of inviting the public to subscribe to its share capital,
(ii) A minimum subscription is fixed, and
(iii) The company is required to sell a minimum number of shares mentioned in the prospectus.

After making the sale of the required number of shares a certificate is sent to the Registrar stating
this fact, along-with a letter from the banks, that it has received application money for such shares.
The Registrar scrutinizes the documents. If he is satisfied, then issues a certificate known as
Certificate of Commencement of Business. This is the conclusive evidence of the commencement of
the business.