21 December 2007
FORMATION OF A PRIVATE COMPANY LIMITED BY SHARES* 2.1 Background note A private limited company means a company which has a minimum paid-up capital of one lakh rupees and which by its articles— (a) restricts the right to transfer its shares, if any; (b) limits the number of its members to fifty not including— u persons who are in the employment of the company; u persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after that employment ceased; (c) prohibits any invitation to the public1 to subscribe for any shares in, or debentures of the company ; and (d) prohibits any invitation or acceptance of deposits2 from persons other than its members, directors or their relatives3. A further condition to be satisfied is that the company should not be a subsidiary of a public company [see section 3(1)(iv)(c)] For the above purpose, where two or more persons hold one or more shares of a company jointly, they shall be treated as a single member. A private limited company enjoys special privileges and exemptions under the Companies Act as compared to a public limited company. A private company may be formed by two or more persons by subscribing to the Memorandum *RELEVANT PROVISIONS : u Companies Act, 1956 : Sections 12, 13, 14, 15, 20, 26, 28, 30, 33, 34, 35, 36, 147, 303, Sch. X. u Companies (Central Government’s) General Rules and Forms, 1956 : Rule 4A, eforms 1, 1A, 18 and 32 1. See section 67 of the Companies Act, 1956. If invitation is to more than 50 persons, it is deemed as an invitation to public. 2. For definition of ‘deposits’, see Companies (Acceptance of Deposits) Rules, 1975. 3. See section 6 of the Companies Act, 1956. and Articles of Association of the Company. Formation of private limited company is suitable in the following cases : u small/family business with lower capital outlay u promoter intends to keep shareholding control u funds are not intended to be raised from public 2.2 Obtaining name availability The promoter should take steps for getting name availability letter from the Registrar of Companies by complying with the procedure given in Chapter 1. 2.3 Drafting of Memorandum and Articles of Association The draft Memorandum and Articles of Association of the Company should be prepared. It is advisable to get the draft vetted by the Legal Adviser/Professional. 2.3-1 Contents of Memorandum The memorandum of association shall state : u the name of the company with "private limited "as the last words; u the State where the registered office of the company is situated; u the main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of main objects; u in case of companies (other than trading corporations) with objects not confined to one State, the States to whose territories the objects extend; u that the liability of members is limited by shares; u the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount. 2.3-2 Form of memorandum The Memorandum of Association shall be in the form as specified in Table B in Schedule I or in a form as near thereto as circumstances admit (Appendix 4). Specimen Memorandum of Association of a Private Company is given in Appendix 5. 2.3-3 Contents of Articles of Association of private company The Articles of Association of a private company should be registered and should contain the restrictive conditions contained in section 3(1)(iii)(a) to (d) of the Companies Act as stated in para 2.1 above. 2.3-4 Adoption of Table A A Company limited by shares may adopt all or any of the regulations contained in Table A in Schedule I (Appendix 6). If Articles are not registered as in the case of public companies limited by shares, the regulations contained in Table A shall apply as if they were contained in the duly registered articles. Any exclusion or modification of Table A should be specific and in case the articles do not exclude or modify the regulations contained in Table A, the provisions contained in Table A shall apply. If a company has not expressly or by implication excluded any regulation in Table A, regulation will be deemed to be incorporated in its articles - Seth Mohan Lal v. Grain Chambers Ltd. [1965] 38 Comp. Cas. 543 (SC). 2.3-5 Specimen Articles Specimen Articles of Association of a Private Company is given in Appendix 7. 2.4 Printing of MoA The Memorandum and Articles of Association should be printed, divided into paragraphs and numbered consecutively. 2.4-1 Offset printing Offset printing is one of the methods of printing developed recently. This system is as good as normal printing and hence there does not appear any objection in accepting the same by the Registrar for the purpose of registration - Circular No. 3/81[F.No. 8/31/15/80-CL-V], dated 15-12-1981 (Annex 2.1). 2.4-2 Computer Printing All computer printed memorandum and articles of association are acceptable, provided they are legibly printed - Circular No. 7 of 1993, dated 22-6-1993 (Annex 2.2). 2.5 Stamping of MoA The Memorandum and Articles of Association should be duly stamped in accordance with the rates applicable to the State in which the registered office of the company is to be situated. Refer Appendix 8 for stamp duty rates applicable to various States. 2.6 Subscription to MoA The Memorandum of Association should be subscribed by not less than 2 persons. Each subscriber should take at least one share and shall write opposite to his name the number of shares he takes. The subscribers must subscribe and pay for shares to the extent of not less than Rs.1 lakh in order to comply with the minimum capital requirements for a private company. 2.6-1 Change of subscribers The names of subscribers should tally with the list of promoters/first directors stated in eForm 1A (Annex 1.1). In case of any change in the names amongst the subscribers, a fresh eform 1A (Annex 1.1) should be filed and the Registrar of Companies may allow the same name [if otherwise available] after six months* from the date on which the name was allowed to the original promoter(s) - Circular No. 1 of 1990, dated 5-1-1990 (Annex 2.3). *Previously, three months. 2.6-2 Deletion of name of subscribers If the change involves deletion of a subscriber, it is sufficient if a “No objection letter” is obtained from the deleted subscriber and filed with the Registrar of Companies. 2.7 Signing of MoA and AOA The Memorandum of Association and AOA should be signed by each subscriber who shall add his address, description and occupation (if any) in the presence of at least one witness who shall likewise add his address, description and occupation, if any. The date of MoA should be a date subsequent to the date of stamping. 2.7-1 Power of Attorney When it is not possible for a company to obtain personal signatures of the subscribers to the memorandum, the memorandum of association and articles of a company and any amendments thereto may be signed on the subscriber’s behalf by an agent if the latter is authorised by a power of attorney to do so - Circular No. 128/HCC/64, dated 27-7-1964 (Annex 2.4). 2.7-2 Signing by subscriber who is illiterate Where an executant of a memorandum of association is illiterate, he shall give his thumb impression or mark which shall be described as such by the subscriber or person writing for him - Letter No. 8/15/58/PR, dated 13-9-1958 (Annex 2.5). 2.7-3 Corporate Subscriber In case the subscriber to memorandum is a company, the memorandum and articles should be signed by the duly authorised agent. 2.8 DIN, Digital Signature and Identity/Address Proof It should be ensured that all the proposed directors have obtained a Director Identification Number and at least one of them hold a Valid Digital Signature required to submit eforms. Where a professional1 is engaged to file application for incorporation of the company and the statutory declaration in Form 1, the professional should have valid digital signature certificate (DSC). Further, the professional engaged to certify Form 18 and Form 32 should also have valid DSC. The documents evidencing address and identity of the proposed directors should be collected. Refer Chapter 202 for procedure to obtain Director Identification Number and Chapter 360 for Digital Signature Certificate. 2.9 Filling up of eforms Before uploading eforms, all the required eforms i.e., eform 1, eform 32 and eform 18 should be downloaded from the portal, filled in, digitally signed, prescrutinised and kept ready for uploading through MCA portal. 1. See section 33(2) of the Companies Act, 1956. 2.10 Submission of eform 1 with the Registrar An application in eform 1 (Annex 2.6 for specimen filled in form) should be filed with the Registrar of Companies through MCA Portal, www.mca.gov.in. The Service Request Number generated on filing Form 1A for name approval shall be quoted in eform 1. 2.10-1 Who can file? The eform 1 shall be filed by a person named in the Articles as a director, manager or secretary of the company or an advocate or an attorney or pleader or a Company Secretary or Chartered Accountant (in whole-time practice) duly authorised by the promoters. 2.10-2 Time Limit This eform should be filed during the validity period of name availability, (i.e.) within six months of the date of name approval letter issued by the Registrar of Companies. 2.10-3 Stamp duty The declaration in Form 1 and the Memorandum and Articles required to be submitted in original to the ROC office should be duly stamped in accordance with the Stamp Duty prevailing in the State in which the registered office of the company is proposed to be situated. 2.10-4 Attachments The following documents should be attached: u Memorandum and Articles of Association u Annexure containing details of subscribers (if the number is more than 7) u The agreement, if any, which the company proposes to enter into with any individual for appointment as its managing or whole-time director or manager u Power of Attorney (if the documents are filed by professional) (Annex 2.7). 2.10-5 How to attach documents? The attachments shall be in PDF format. A physical document can be converted into an electronic document through scanning. A soft copy may also be converted into PDF format and used as an attachment to eform. 2.10-6 Digital Signature The eform should be digitally signed by a person named in the Articles as a director, manager or secretary of the company or an advocate or an attorney or pleader or a Company Secretary or Chartered Accountant (in whole-time practice in India) duly authorised by the promoters. [See section 33(2) of the Companies Act, 1956. Explanation to section 33(2)] 2.10-7 Filing and Registration fee Filing fee should be paid for Articles of Association and eform 1. In addition, fee for registration of the company shall be paid. The fees shall relate to the authorised capital of the Company and as per Schedule X of the Companies Act, 1956 (Appendix 9) 2.10-8 Filing instruction Refer Chapter 358 for detailed instructions for filing e-forms. 2.11 Submission of eform 32 with the Registrar Simultaneously with filing of application for incorporation in Form No. 1, a return containing the particulars of directors in eform 32 (Annex 2.8 for specimen filled in form) should be filed with the Registrar of Companies through MCA Portal. On uploading of eform 1, the system will display a message instructing the user to upload eform 32. This button should be clicked and eform 32 should be uploaded. 2.11-1 Who can file? The eform 32 shall be filed by a person named in the Articles as managing director or director, duly authorised by the promoters. 2.11-2 Use of eform 32 Addendum Form 32 can be used only for 3 directors. If the number of directors exceeds three, eform 32 Addendum should be filed through MCA Portal quoting service request number of eform 32. 2.11-3 Time Limit This eform should be filed simultaneously with eform 1. 2.11-4 Pre-certification by professionals Pre-certification from the chartered accountant/cost accountant/company secretary (in whole time practice) should be obtained. 2.11-5 Attachments The following documents should be attached : u Photographs of appointees u Consent letters for appointment (Annex 2.9) u Declaration regarding disqualification 2.11-6 How to attach documents? The attachments enclosure shall be in PDF format. A physical document can be converted into an electronic document through scanning. A soft copy may also be converted into PDF format and used as an attachment to eform. 2.11-7 Digital Signature The eform should be digitally signed by a person named in the Articles as managing director or director, duly authorised by the promoters. 2.11-8 Filing fee Filing fee shall relate to the authorised capital of the Company and as per Schedule X of the Companies Act, 1956 (Appendix 9). 2.11-9 Filing instruction Refer Chapter 358 for detailed instructions for filing e-forms. 2.12 Submission of eform 18 with the Registrar Simultaneously, a notice containing the situation of registered office in eform 18 (Annex 2.10 for specimen filled-in form) should be filed with the Registrar of Companies through MCA Portal. On uploading eforms 1 & 32, the system will display a message instructing the user to upload eform 18 and the user must click the button and upload the same. 2.12-1 Who can file? The eform 18 shall be filed by a person named in the Articles as managing director or director, duly authorised by the promoters. 2.12-2 Time Limit This eform should be filed simultaneously with eform 1. 2.12-3 Pre-certification by professionals Pre-certification from the chartered accountant/cost accountant/company secretary (in whole time practice) should be obtained. 2.12-4 Attachments No mandatory attachment. Address proof may be given as optional attachment. 2.12-5 Digital Signature The eform should be digitally signed by a person named in the Articles as managing director or director or manager or secretary, duly authorised by the promoters. 2.12-6 Filing fee Filing fee shall relate to the authorised capital of the Company and as per Schedule X of the Companies Act, 1956 (Appendix 9). 2.12-7 Filing instruction Refer Chapter 358 for detailed instructions for filing e-forms. 2.13 Payment Since this activity involves filing of multiple eforms, the payment receipt (in case of online payment) or challan (in case of off-line payment) shall be generated by the system only after all the eforms are uploaded. A combined receipt/ challan shall be generated for all the eforms together. 2.13-1 Mode of Payment The filing fee should be paid through one of the specified modes viz., remittance in authorised banks, credit card or through internet banking. In case of online payment, filing process shall be complete immediately. (See Appendix 18). 2.13-2 Procedure in case of off-line payment In case of remittance through authorised bank, a pre-filled challan containing the SRN, date of challan, expiry date, name and designation of user by whom challan is tendered, name and address of the company, particulars of remittance, total amount and Head of account shall be generated by the system. The challan should be used for making payment before the date of expiry mentioned therein and the transaction shall be completed by the concerned banks. 2.13-3 Non-payment of fee before due date If the payment is not made by pay by date mentioned in challan, submission of form shall be regarded as incomplete and an e-mail will be sent to the applicant that the form cannot be regarded as filed due to non-payment. The status of payment can be verified through MCA portal. 2.14 Physical submission of Stamped documents Immediately after filing eforms, the Original and duly stamped and signed declaration in eform1 and the Original and duly stamped and signed Memorandum and Articles of Association should be physically submitted to the Registrar of Companies quoting the concerned Service Request Number. In case of failure to file physical documents, filing will not be considered and legal action will be taken. 2.15 Certificate of Incorporation The Registrar of Companies shall process the application and on being satisfied with the compliance of all formalities, register the company, allot a Corporate Identification Number (CIN) which shall be quoted in all correspondences/ eforms and issue a Certificate of Incorporation. On the issue of the certificate of incorporation, the company shall come into being as a separate entity from the date specified therein. The Certificate of Incorporation shall be conclusive evidence that all the requirements of the Act have been duly complied with. 2.15-1 Time Limit as per Citizen Charter As per Citizen Charter of DCA (Appendix 10) the Certificate of Incorporation should be issued within 14 days. Refer Appendix 11 for DCA circulars regarding allotment of CIN. 2.15-2 Safe custody The Original Certificate of Incorporation, being a permanant record, should be collected from the Registrar of Companies and kept under safe custody. 2.16 Publication of Name On incorporation of the company, the name of the company should be published in the following manner: 2.16-1 Every company should— u paint or affix its name and the address of its registered office and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a conspicuous position, in letters easily legible; and if the characters employed therefor are not those of the language, or one of the languages, in general use in that locality, also in the characters of that language or of one of those languages; u have its name engraven in legible characters on its seal; u have its name and the address of its registered office mentioned in legible characters in all its business letters, bill heads and letter papers and in all its notices and other official publications ; and also have its name so mentioned in all bills of exchange, hundies, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the company, and in all bills of parcels, invoices, receipts and letters of credit of the company. 2.17 Pre-scrutiny of documents It is advisable to submit the full set of documents to the Registrar for prescrutiny. This is optional but will insure that the documents to be uploaded through the MCA portal are in order and not defective in any manner. Since the defective documents will be required to be re-submitted leading to time delay, it is preferable to use the facility of pre-scrutiny. ANNEX 2.1 (Refer Para 2.4-1) DCA CIRCULAR : OFFSET PRINTING OF MEMORANDUM OR ARTICLES Whether memorandum or articles of association printed by offset printing method can be accepted for the purposes of registration of companies A question has been raised whether memorandum and articles of association printed by offset printing method can be accepted by the Registrar of Companies for the purpose of registration. The matter has been carefully examined by the Department and it is of the view that offset printing is one of the methods of printing developed recently. This system is as good as normal printing and hence there does not appear any objection in accepting the same by the Registrar for the purpose of registration. Source : Circular No. 3/81 [F.No. 8/31/15/80-CL-V], dated 15-12-1981. ANNEX 2.2 (Refer Para 2.4-2) DCA CIRCULAR : COMPUTER PRINTING OF MEMORANDUM Acceptance of computer printed documents for registration of companies The Department has received representations that in view of advancement in computer laser printing techniques, the documents printed on laser printers have same quality of printing as in letter press. In view of this fact the memorandum and articles printed on computer laser printers may be accepted by the Registrars for registration of companies for purposes of sections 15 and 30. This matter has been reviewed by the Government and it has now been decided that with immediate effect the Registrar should accept and take on record all computer printed memorandum and articles provided the documents are neatly and legibly printed and comply with the other requirements of the Act. Source : Circular No. 7 of 1993, dated 22-6-1993. ANNEX 2.3 (Refer Para 2.6-1) DCA CIRCULARS : FRESH APPLICATION FORM FOR REGISTRATION Application form to be filled up in all respects and signed by one of the promoters - Instructions to Registrars CLARIFICATION 1 I am directed to refer to this Department’s Circular No. 27/1/89-CL-III, dated 17th February, 1989, on the above subject (see Clarification 2) wherein you were requested to advise your constituents to ensure that the application form is signed by one or more amongst the promoters and in case one or more of the promoters are thereafter no more interested in participating in the promotion of the new company, a no objection letter from such promoter is made available to the Registrar of Companies at the time of registration of the new company. Instances came to the notice of the Department that some promoters are pre-empting the names, which is not a healthy practice. It has, accordingly, been decided that, in future, Registrars of Companies should register the company only in cases where the promoters, as per availability of name and application, are also the subscribers to the memorandum and articles of association of the proposed company at the time of its registration. In case of any change in the name(s) amongst the subscribers, the changed subscribers are advised to make fresh application for availability of name. The Registrar may, as per existing procedure, allow the same name, if otherwise available, after three months* from the date when the name was allowed to the original promoter(s). Source : Circular No. 1 of 1990, dated 5-1-1990. CLARIFICATION 2 As per the application form for availability of names (Form No. 1A), prescribed under rule 4A of the Companies (Central Government’s) General Rules and Forms, 1956, the promoters are, inter alia, required to give the names and addresses of the prospective directors or promoters, as also the name(s) and address(es) of the person(s) applying for availability of names. You are requested to advise your constituents to ensure that the application form is filled up in all respects and the application is made by one or more amongst the promoters. The Registrars of Companies have been advised to ensure at the time of registration of a new company that the subscribers to the memorandum and articles of association tally with the list of promoters/first directors stated in the application for availability of names and in case, one or more of the promoters are not interested in participating in the promotion of a new company, at a later stage, a “Noobjection letter” from such promoter(s) is made available to the Registrar while submitting the documents for registration. The Registrars of Companies are also being advised to dispose of applications for availability of names ordinarily within 14 days of the receipt of application and to correspond with the applicant promoter(s) in this behalf. Source : Letter F.No. 27/1/89-CL-III, dated 17-2-1989. *Now, six months. ANNEX 2.4 (Refer Para 2.7-1) DCA CIRCULAR : AUTHORISATION FOR SIGNING MEMORANDUM Whether general authorised agent can sign memorandum or any amendment thereto on behalf of subscriber It has been brought to the notice of the Company Law Board that some Registrars of Companies have been insisting that the memorandum of association of a company and any amendments thereto should be signed by the subscribers themselves and not through their constituted attorneys and that this is causing some practical difficulties, especially where some of the subscribers to the memorandum are foreign parties who may be collaborating with Indian promoters. The matter has been carefully examined by the Company Law Board and it has been decided that when it is not possible for a company, it may be signed on his behalf by an agent if the latter is authorised by a power of attorney to do so. The same course may also be followed in respect of any amendments to the memorandum of articles which it may be found necessary to make as a result of any suggestions in this behalf made by the Registrar concerned after the scrutiny of the memorandum and articles presented to him for registration. In this connection, attention is also invited to the last sentence of para 2 of the former Department of Company Law Administration’s Circular Letter No. 8/15/58, dated 13-9-1958 wherein it was stated that “An agent may sign the memorandum on behalf of a subscriber if he is authorised by a power of attorney to do so.” A suggestion has also been made to the Company Law Board that it would be helpful to promoters if the Registrar could scrutinise and approve the draft memorandum and articles of a proposed company before they are presented to him for registration. Though it may not be possible for the Registrars to accept a definite commitment in this regard, the Board is of the view that the Registrars should, to the extent possible, offer their help and advise to those who may approach them in drawing up the memorandum and articles. This would be specially desirable in cases where promoters have no prior experience of company promotion. Source : Circular No. 128/HCC/64, dated 27-7-1964. ANNEX 2.5 (Refer Para 2.7-2) DCA LETTER : SIGNATURE OF MEMORANDUM BY ILLITERATE SUBSCRIBER Requirement as to signature by a subscriber who is illiterate It has been brought to the notice of this Department that some practical difficulties have been experienced in complying with the provisions of sections 13 and 15 in cases where the subscriber to the memorandum of association of a company is illiterate. Section 13(4)(c) requires each subscriber to the memorandum to write opposite to his name the number of shares he takes. Section 15(c) requires the memorandum to be signed by each subscriber (who shall add his address, description and occupation, if any), in the presence of at least one witness who shall attest the signature and shall likewise add his address, etc. After consideration of the position, it has been decided that when an executant of a memorandum of association is illiterate, he should give his thumb impression or mark which should be described as such by the subscriber or person writing for him. The latter should place the name of the executant against or below the mark and authenticate it by his own signature. He should also write against the name of the subscriber, the number of shares taken by him. Such person should also read and explain the contents of the documents to the executant and make an endorsement to that effect on the document. An agent may sign the memorandum on behalf of a subscriber if he is authorised by a power of attorney to do so.
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