Incorporation is the process of forming a company that makes a business a legal entity. It has many benefits, such as limited liability, perpetual existence, and the ability to raise capital through the issuance of shares. Any entrepreneur or business enthusiast who wants to start a company must know the incorporation stages. The procedure of incorporation of company translates an idea into a recognized company governed by the law.
What is Incorporation?
Incorporation is the legal procedure that forms a business into a company, which is different from its owners. The process gives the company a right to enter into contracts, own assets, and incur liabilities in its name. Incorporation is very beneficial for business owners because it provides a form of limited liability protection, meaning most personal assets are protected from the debts and obligations of the business.
Key Benefits of Incorporation
Liability: Shareholders only are liable to the debtors of the company, for the amount invested in it.
Legal Distinct Identity: The company and its owners are distinct and different.
Survival and Perpetual Succession: The company remains long after the original owner leaves or passes away.
Raising of Capital: The companies, on incorporation, can easily raise capital from people by issuing shares in return.
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Stages of Incorporation of a Company
Company incorporation is an official process that legalises an entity of the business. Such incorporation makes a firm different from its creators. Its requirement can be justified by a company that is seeking reliability, reducing the risk to its liability, and protecting individual assets. Formation of company under Companies Act 2013 is a methodical procedure If a novice is aware of each stage through which the company would pass to be incorporated, then such a person may find a more accessible way to determine all legal aspects while forming and establishing the company.
Step 1. Preliminary Preparations and Deciding
Business Idea and Structure: Starting from business idea conceptualization to selecting a legal structure. Thereby, depending upon the business idea that a company chooses, selecting the appropriate legal structure befits as either a private limited company or public limited company, or it can be solely a proprietorship or in partnership form, or even LLP, wherein selection affects the extent of liability and the taxation or the scope for operations.
Naming and Registration Approval: The name shall be unique and in accordance with the legal requirements. In most cases, entrepreneurs make several options for names and check their availability through the registrar. In most countries, an online search facility exists with such offices to look up name availability.
Stage 2: Preparation and Filing of Key Documents
Preparation of Key Documents:
Memorandum of Association: The MoA largely covers the fundamental purposes that a company is intended for, like scope and dealings with its shareholders. The MoA creates limits upon the activities of the business and defines its purpose.
Articles of Association: Articles of Association describe operational rules and regulations with which the company is to run. This also gives accounts of the rights of shareholders, the voting rights, the distribution of the dividend, and powers conferred upon the directors.
Director Identification and Digital Signature Certificates: The directors have to get DINs and DSCs. These are essential for signing the electronic documents. These certificates authenticate the identity of each director in the company's records.
Form Filling and Application for Incorporation: The founders of the company have to submit specific forms to the registrar for incorporation. These include the incorporation application form and the details of the registered office address.
Stage 3: Filing with the ROC
Submission of incorporation application: The whole set of paperwork is submitted to the Registrar of Companies (ROC) once the preparation is done. It involves the submission of a MoA, AoA, and other forms for incorporation.
Verification and payment of fees: The ROC verifies the submitted information and documents. After verification, the applicable incorporation fee is paid. This fee will depend on the business structure as well as the applicable jurisdiction. In this process, the ROC may continue verifying or make minor amendments if issues are found at this stage.
Stage 4: Issuance of incorporation certificate
Once the ROC approves the application, it grants a Certificate of Incorporation (COI). COI becomes a certificate that declares to the world that a business has legally come into being. A company is considered a legal entity once it has its COI and it can do business under the company's name registered with the government. It contains all the necessary information about the incorporation number of the company and the date of registration. It is also seen as proof in law as well.
Stage 5: Post-Incorporation Formalities
Opening a Corporate Bank Account: The company needs to have a specific bank account to keep its money, receive payments, and carry out transactions. This way, there is separation of personal and business funds. This is one of the principles of limited liability.
Tax Registrations and Compliance:
PAN and TAN Application: Almost all countries require companies to apply for a Permanent Account Number (PAN) for tax purposes. A Tax Deduction and Collection Account Number (TAN) might also be required.
GST Registration: The indirect tax would require firms with both goods and services businesses to register with the Goods and Services Tax (GST).
Share Allotment and Issuance: If the firm is a company, there has to be allotment of shares and issuance in accordance with the AoA. All such details have to be incorporated into a formal register maintained in writing, and share certificates ought to be issued.
Step 6: Compliance with Laws and Statutes
Appointment of Auditors: In many cases, the company would be required to appoint an auditor within thirty days of incorporation. The auditor can look into the financial statements and thus ensure that statutory provisions are complied with.
Corporate Governance and Compliance:
Board Meeting: The first board meeting of the company would also typically occur soon after incorporation. A lot of routine matters that need to be considered would often involve the appointment of a statutory officer or officers, approval of bylaws, authorization of the company to conduct certain business activities.
Statutory Registers and Records: Many such registers have to be prepared and maintained by the company, like members' registers, directors' registers, and loan registers. Thus the provision exists to allow a right and true picture in order that audits may take place or regulation exercises might be done in keeping the companies within the legal ambit of doing things.
Stage 7: Business Launch and Operational Preparations
Upon achieving the legal entity of a company, the stage is all ready for its infrastructure needed in business. It's further bifurcated to a stage, comprising establishing the office space, acquisition of personnel, marketing, and availability for all other requisites and machinery that is supposed to carry on with its task.
Also, read to know about the types of companies in India.
Common Challenges in the Incorporation Process
The process of incorporation can be a complex one and is always challenging to the entrepreneur, especially when faced with:
Document Preparation: Preparing MOA, AOA, and other related documents is time-consuming if not done correctly.
Compliance Requirements: This can be quite tricky when moving through regulatory requirements. It is more difficult to handle if it is an individual's first time.
Cost of Incorporation: The costs associated with incorporation may be the fees, stamp duties, and professional costs that have a cumulative effect on increasing the cost of incorporation.
Conclusion
Incorporation processes can seem very complex but are indeed beneficial through their legal framework, protection of personal assets, and high credibility. Every step from naming to compliance ensures that a company is based on a sound footing that matches the standards of legality, finance, and operations. Therefore, the process ensures that all companies will be able to overcome the initial stages with great difficulty and stand in their position to sustain and enjoy growth and success.
Stages of Incorporation of Company FAQs
1. What is incorporation?
Incorporation refers to the legal process of the formation of a company as an entity that is separate from its owners. It confers the legal identity of the company and allows it to hold assets, enter into contracts, and be independently liable.
2. What are the advantages of the incorporation of a company?
An incorporation provides owners with limited liability protection, tax benefits, credibility with investors, and the ability to raise capital by issuing shares. It also allows for perpetual succession, meaning the company can continue to exist beyond the involvement of its original founders.
3. What documents are required for incorporation?
The main required documents for a company setup are the Memorandum of Association, Articles of Association, DSCs for directors and promoters, and DIN. Public companies may be required to have a prospectus for issue to potential investors, too.
4. Can you state the difference between a Memorandum of Association and an Articles of Association?
Memorandum of Association deals with the basic aspects of the company, such as objects, the registered office, and capital structure. The articles of association will determine internal rules and regulations of the company, which further state the rights of the shareholders and the role of the directors.
5. How to choose the name of a company?
This will carry a name that is quite unique and relevant to that business while also being adherent to the regulatory norms. The name should neither be similar to any such existing names of companies in the register nor contain a restricted word.
