This article is written by Anubrata Nath during her internship with Le Droit India.
Abstract
The Companies Act of 2013 was passed to modernize and streamline India’s business laws. It replaced the old 1956 Act and made it easier to do business and more open. Section 2(68) defines a private company as an organization whose articles forbid public invitations for securities, limit share transfers, and limit membership to 200 people (not including current and former employees, with joint shareholders counted as one). The requirement for an initial paid-up capital of ₹1 lakh was later removed. Chapter II, “Incorporation of Company and Matters Incidental Thereto,” explains how to set up a business. To e-file the Memorandum of Association (MoA) (Section 3), at least two subscribers and directors must sign the document. Each must own at least one share. You need Digital Signature Certificates and Director Identification Numbers, which you can get through SPICe+ Part B. The Central Registration Center holds approved names (with “Private Limited”) for up to 60 days and decides whether or not to approve them within that time frame. The RUN form or SPICe+ Part A is used to reserve a name under Section 4. Subscribers must sign the Memorandum of Association (MoA, Tables A–E) and Articles of Association (AoA, Tables F–J) when they make a reservation. The registered office, objects, liability, capital, and internal governance must all be included in these documents. Then, according to Section 7(1), filers send in SPICe+ Part B (INC 32), Form INC 9 (professional declaration), Form DIR 2 (director affidavits), identity and office credentials, and attachments that have been digitally signed. The Certificate of Incorporation, which includes the Corporate Identity Number and the date of incorporation, is issued by the Registrar of Companies (s. 609). This document proves that the business is legally registered and starts the process of keeping records. Some of the most important papers are INC9, DIR2, INC22, MoA, AoA, and SPICe+. The ROC and the Central Registration Center in Delhi work together to approve things. Thorough inspections, like MCA’s “Check Form” tool, can help avoid common problems like name conflicts, poorly designed MoA/AoA, inconsistent form data, and DSC or document errors. Recent cases like Mantharagiri Spinners Pvt. Ltd. (2023) and Sanmati Agrizone Pvt. Ltd. (2023) show how important it is to follow the rules for incorporation and after incorporation. These cases show how the ROC and NCLT/NCLAT got involved in name strike-off and reinstatement under Sections 248 and 252.
Introduction
“The Companies Act, 2013 was enacted to consolidate and amend the law pertaining to companies.” Its objective is to modernize corporate law, thereby enhancing transparency and the convenience of conducting business, by repealing the outdated 1956 Act. The procedure for company formation is outlined in Chapter II of the Act, which is titled “Incorporation of Company and Matters Incidental Thereto.” Section 2(68) defines a “private company” as an entity that, by its articles, (i) restricts the right to transfer its shares, (ii) limits membership to 200 persons (excluding current and former employees, counting joint shareholders as one), and (iii) prohibits any public invitation to subscribe to its securities. It is important to note that the Act originally stipulated a minimum paid-up capital of ₹1 lakh, but this requirement was subsequently omitted by amendment.
Detailed Procedure Process of Incorporation
- Subscribe Memorandum (Section 3): A private company is required to have a minimum of two directors and at least two subscribers. The Memorandum of Association (MoA) is signed by these subscribers, who consent to purchasing a minimum of one share.
2) Digital Signature Certificates (DSCs) are required for all subscribers and directors to approve e-forms. Additionally, DINs must be obtained. The SPICe+ e-form permits the allocation of up to three new Director Identification Numbers (DINs) to first directors, so it is not necessary to pre-obtain DINs.
3) Name Reservation (Section 4 and Regulations): Apply for the reservation of the company name through the MCA portal. One may submit an application to the Registrar for a proposed company name or name change in accordance with Section 4(4), along with the prescribed form and fee. This process has been conducted through the SPICe+ Part A (or RUN) web form since 2020. The name will be approved or rejected by the Registrar within 60 days through the Central Registration Centre (CRC). The name is initially reserved for 20 days upon approval, with the option to extend it for up to 60 days by paying additional fees. The rules outlined in Sections 4(2)–4(3) must be adhered to by the names, which must include the term “Private Limited” and refrain from using prohibited or misleading phrases.
4) Prepare the documents for incorporation: Prepare the necessary documentation after the name has been reserved. The name (with the suffix “Private Limited”), state of registered office, objects, liability, and capital clauses must be specified in the MoA (Tables A–E, Schedule I). The internal management principles are outlined in the Articles of Association (AoA, Tables F–J, Schedule I). The MoA (and AoA) must be signed by all subscribers in the prescribed format.
5) Part B of the SPICe+ file: File SPICe+ (INC-32) Part B on the MCA portal during the name-reservation period. This single e-form integrates incorporation with other services, including the opening of a bank account, the registration of a PAN/TAN, the enrolment of GST/EPFO/ESIC, and the allotment of a DIN.
- Include all necessary filings as outlined in Section 7(1): the professional declaration (Form INC-9) by a CA/CS/CWA and one director, affirming compliance with all incorporation requirements; affidavits (Form DIR-2) from each subscriber and first director certifying no disqualification (fraud/misconduct) in the past 5 years; and details of subscribers and directors (names, addresses, nationality, proof of identity, and consent to act). The MoA and AoA have been signed. Additionally, submit evidence of the registered office (e.g., rent/lease deed with NOC and utility statement) and the identity of each subscriber. (Where necessary, forms and attachments must be digitally signed and submitted in PDF format.)
7) Incorporation and Scrutiny of the Registrar (Section 7(2)): The filings are reviewed by the ROC. The Registrar registers the documents and issues the Certificate of Incorporation in the prescribed form if all is in order. The company’s legal formation under the Act is verified by this certificate, which includes the Corporate Identity Number (CIN) and the date of incorporation. The company is legally established from that date and is required to retain copies of all documents that were originally lodged at its registered office.
Important Legal Documents
- SPICe+ (INC-32) – The online incorporation form, which is divided into two sections: Incorporation (Part B) and Name (Part A). Streamlining filings is achieved by integrating company registration and name reservation (as well as related services) into a single process.
2) Memorandum of Association (MoA): The charter of the company, which includes its name (with a “Private Limited” suffix), state, objects of incorporation, liability clause, and capital clause. The “objects” clause of the MoA delineates the scope of corporate powers, and any action that exceeds these objects is considered ultra vires. The shares of a company are allocated in accordance with the Memorandum of Agreement. By law, any term in the MoA (or AoA) that is in conflict with the Act is null and void; the Act “shall have effect notwithstanding anything contrary contained in the memorandum or articles.”
3) Articles of Association (AoA): The regulations that regulate internal administration, including the authority of directors and the conduct of meetings. The AoA must include itemized provisions that are mandated by regulation and may include “entrenchment” clauses that restrict specific modifications. In the same vein as the Memorandum of Association, it is a statutory document that is submitted upon incorporation.
4) Form INC-9 (Declaration) – A declaration that all registration requirements of the Act have been satisfied, signed by the company secretary/CA/CS/CWA and one director. It replaces previous affidavits and ensures legal compliance with the incorporation process.
5) Form DIR-2 (Consent and Affidavit by Director) – Each initial director must provide a DIN and submit an affidavit of no disqualification in order to consent to act. The form contains a declaration of a clear criminal/company background and identity/proof.
6) Proof of Identity, Address, and Registered Office: Photocopies of PAN, Aadhaar, or passports are required as identification proof for subscribers/directors, and a utility bill/lease deed is required as address proof for the proposed registered office. (In order to verify the registered office, Form INC-22 must be submitted subsequent to incorporation.)
MOA and AoA have a fundamental legal impact, as they serve as the organization’s constitution. Nevertheless, Section 6 explicitly states that the Act’s provisions supersede any conflicting clauses in the MoA/AoA.
Authorities Involved
- Registrar of Companies (ROC): The statutory authority (appointed under Section 609) that is authorized to incorporate companies. The ROC registers the documents, examines the SPICe filings, and issues the Certificate of Incorporation. The ROC is responsible for the maintenance of the company’s register following its incorporation, including the filing of annual returns and the implementation of modifications.
2) Central Registration Centre (CRC): The MCA’s Central Registration Centre in Delhi centralizes the processing of name approvals and SPICe filings to expedite incorporations. In practice, the ROC delegated the processing of SPICe+ and name-reservation to the CRC. (For instance, notifications specify that the “Registrar, Central Registration Centre” is responsible for determining the status of name applications submitted through SPICe+.) Consequently, applicants are not required to contact a local ROC for name approval; the CRC is responsible for processing all SPICe/INC-32 submissions on behalf of all ROCs.
Practical Issues and Common Errors
Applicants frequently commit the following errors (and should exercise caution to prevent them):
1) Errors in Name Selection: Rejection is the result of proposing a name that is too similar to an existing company or violating naming rules (e.g., omitting “Private Limited” or using prohibited terms without approval). Before submitting an application, it is imperative to conduct a comprehensive search of the MCA portal and trademarks database and verify that it complies with Sections 4(2)–(3).
2) Inadequate MoA/AoA Drafting: Approval may be delayed by the use of inaccurate or generic object clauses or the inclusion of clauses that are in violation of the Act. For example, a MoA that fails to explicitly specify the primary business objectives or an AoA clause that violates a statutory requirement will be invalidated. It is imperative to meticulously draft the MoA/AoA, preferably with the assistance of legal counsel, to ensure that they are consistent with the company’s actual operations and the provisions of the Companies Act.
3) Inaccurate or incomplete form data: The entry of inconsistent information, such as mismatched director details, incorrect addresses, or the incorrect class of company, frequently results in errors or queries. For instance, the submission of documents that are unsigned or unaligned or the provision of an incorrect residential address for a director will result in rejection. Applicants are required to verify all entries, including names, DINs, PANs, and addresses, and ensure that all necessary fields and attachments are accurately completed and signed.
4) DSC and Document Issues: Common errors include the failure to include mandatory declarations (INC-9/affidavits), the use of expired Digital Signature Certificates, or the uploading of files in the incorrect format or size. For instance, the form will be rejected if the DSC is not attached to the final PDF or the requisite NOCs for the registered office are not provided. To prevent this, it is recommended that you utilize the MCA “Check Form” utility, maintain valid and registered copies of all DSCs, and comply with the prescribed document checklist.
Case Reference
1) Mantharagiri Spinners Pvt. Ltd. v. ROC Coimbatore (NCLT Chennai, 2023): In order to reinstate a private company that had been struck off, the tribunal implemented Section 252(1). It ruled that the company’s name should be reinstated in the ROC register “as if the name…has not been struck off,” provided that dues are paid. This demonstrates the authority’s and tribunal’s ability to reinstate companies following their administrative removal.
2) Sanmati Agrizone Pvt. Ltd. v. RoC Delhi (NCLT & NCLAT, 2023): In a recent appeal, the NCLAT upheld the ROC’s decision to strike off a company for having “zero revenue” in two consecutive years, deeming it to be not conducting business. The NCLAT concurred that the financial statements that did not disclose any income met the criteria of Section 248(1)(c), and as a result, the name strike-off was valid. This case underscores the significance of adhering to filing and business-activity norms during the initial stages of a company’s existence and the rigorous ROC scrutiny.
References
· Companies Act, No. 18 of 2013 (India) §§ 2(68), 3, 4, 6, 7, 12, 135, 248(1)(c), 252(1), 396.
· Companies (Amendment) Act, No. 27 of 2015 (India).
· Companies (Incorporation) Rules, 2014 (India) rr. 7–10, 12.
· Mantharagiri Spinners Pvt. Ltd. v. Registrar of Companies, Coimbatore, NCLT (Chennai Bench), CP/214/2019 (Mar. 17, 2023).
· Sanmati Agrizone Pvt. Ltd. v. Registrar of Companies, Delhi, Co. App. (AT) No. 32/2023, NCLT (Delhi Bench) (2023), aff’d NCLAT Co. Appeal No. 50/2023 (2023).
