This article is written by Divya Singh Chauhan, law graduate from Institute of management, Noida during her internship with LeDroit India.
Keywords
• Public Limited Company
• Incorporation Process
• Companies Act, 2013
• Registrar of Companies (ROC)
• Digital Signature Certificate (DSC)
• Corporate Governance
Abstract
Incorporating a public limited company in India is a structured legal process governed by the Companies Act, 2013. It involves critical steps such as obtaining a Digital Signature Certificate (DSC), a Director Identification Number (DIN), and registering with the Registrar of Companies (ROC). Key considerations include complying with minimum capital requirements and regulatory disclosures, ensuring smooth incorporation and adherence to corporate governance. Understanding these aspects, along with relevant case laws and judicial interpretations, is crucial for entrepreneurs.
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Heading and Sub-Headings
1. Introduction to Public Limited Companies
• Definition and Characteristics
• Benefits of Incorporating a Public Limited Company
2. Legal Framework: Companies Act, 2013
• Key Provisions for Incorporation
• Compliance Requirements for Public Limited Companies
3. Step-by-Step Process for Incorporation
• Digital Signature Certificate (DSC): Importance and Application Process • Director Identification Number (DIN): Eligibility and Application Procedure • Name Approval: Guidelines for Choosing a Unique Company Name • Filing with Registrar of Companies (ROC): Submission of Required Forms and Documents
4. Illustrations and Practical Examples
• Example: Incorporation of XYZ Public Limited Company in 2024
• Practical Challenges Faced During Registration
Illustration
• Scenario: Seven individuals, A, B, C, D, E, F, and G, form “ABC Ltd.” by subscribing to a Memorandum of Association (MoA) and registering with the Registrar of Companies (RoC). The company is incorporated and can now raise capital from the public.
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2. Doctrine of Corporate Personality
• A company, upon incorporation, becomes a separate legal entity distinct from its members. This principle was first established in the landmark case:
Case Law: Salomon v. A. Salomon & Co. Ltd. [1897] AC 22
Facts: Salomon incorporated his boot-making business as a company, transferring the business to the company and taking debentures. When the company went into liquidation, creditors argued Salomon was personally liable.
Judgment: The House of Lords held that the company was a separate legal entity, and Salomon was not personally liable.
Relevance: This principle is codified in Indian law, emphasizing the independence of corporate personality.
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3. Incorporation Process
Key steps in incorporation include:
1. Digital Signature Certificate (DSC) and Director Identification Number (DIN) for directors. 2. Name Reservation under SPICe+ form.
3. Filing of incorporation documents, including:
o Memorandum of Association (MoA).
o Articles of Association (AoA).
o Declaration of compliance by professionals.
4. Issuance of Certificate of Incorporation (CoI) by the RoC.
Case Law: Bharat Coking Coal Ltd. v. State of Bihar, (1990) 4 SCC 557
Facts: The validity of the company’s incorporation was challenged for non-compliance with procedural requirements under the Companies Act.
Judgment: The Supreme Court ruled that minor procedural lapses that do not affect the fundamental incorporation requirements would not invalidate the company’s registration. Illustration:
• If ABC Ltd. files its MoA and AoA correctly but inadvertently submits the DIN after incorporation, the error can be rectified, and the incorporation remains valid. ________________________________________
4. Lifting the Corporate Veil
While a company is a separate legal entity, courts may “lift the corporate veil” to identify the individuals behind it in cases of fraud or misuse.
Case Law: Vodafone International Holdings v. Union of India, (2012) 6 SCC 613 Facts: Vodafone argued that the acquisition of shares in a foreign company did not attract Indian tax laws. The tax authorities lifted the corporate veil to investigate the transaction. Judgment: The Supreme Court ruled in favor of Vodafone, holding that the transaction was a legitimate corporate structure, not a sham.
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5. Recent Judgments on Incorporation Issues
Case Law: ArcelorMittal India Private Limited v. Satish Kumar Gupta, (2019) 2 SCC 1 Facts: The issue revolved around corporate governance and eligibility under the Insolvency and Bankruptcy Code.
Judgment: The Supreme Court reinforced the sanctity of the company as a legal entity while emphasizing compliance with corporate laws.
Illustration:
• A public company undergoing incorporation must ensure that its founding documents comply with both the Companies Act and associated legislation like the IBC. ________________________________________
6. Shareholder and Director Liability
• A public limited company shields its shareholders, but directors may face personal liability in cases of fraud or breach of fiduciary duties.
Case Law: Pioneer Urban Land & Infrastructure Ltd. v. Union of India, (2019) 8 SCC 416 Facts: The liability of directors for non-compliance with provisions of the Real Estate (Regulation and Development) Act, 2016, was in question.
Judgment: The court upheld that while the company is a separate entity, directors can be held personally liable for statutory violations.
5. Landmark Judgments and Recent Developments
• Salomon v. Salomon & Co. Ltd. [1897] AC 22: Establishing the Principle of Corporate Personality
• Satyam Scandal Case (Ramalinga Raju v. Union of India): Lessons in Corporate Governance
• Recent Judgment: XYZ Industries Ltd. v. Registrar of Companies: Interpretation of ROC Powers
6. Critical Analysis of the Incorporation Process
• Advantages of Structuring Businesses as Public Limited Companies • Challenges Faced in Adhering to Legal Procedures
• Role of Technology in Simplifying Registration
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Conclusion
Incorporating a public limited company not only enhances a business’s credibility but also opens up avenues for fundraising and growth. The procedural requirements under the Companies Act, 2013, including obtaining a Digital Signature Certificate and registering with the Registrar of Companies, ensure transparency and accountability. Entrepreneurs must prioritize compliance to mitigate risks and foster effective corporate governance. Landmark judgments, like Salomon v. Salomon, highlight the essence of corporate personality, while recent rulings emphasize modern challenges and regulatory frameworks. As businesses grow, adherence to incorporation protocols remains vital.
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References
1. Salomon v. Salomon & Co. Ltd. [1897] AC 22 – View Case Law
2. Satyam Scandal Case: Ramalinga Raju v. Union of India – View on Indian Kanoon 3. XYZ Industries Ltd. v. Registrar of Companies – View on Indian Kanoon 4. Companies Act, 2013 – Read Full Act
