Introduction:
A company is the amalgamation of a group of people who are working for a particular objective. A company is legally registered under the Companies Act, 2013. As per the company act, it means a company that is incorporated under the Companies Act, 2013 or under any previous company law. A company is a legal entity that allows a bunch of people to be the stakeholders of the company. A company is owned by a set of people so there are no homeowners of the company and totally segregated from the owners. The company includes a name, directors, employees and financial resources and a territory too. The directors are the prime people who are running the company hence lead the company from the front. Company act listed down the procedures and rules for the formation of a company. The act also holds the punishment for false representation of a document or if the company breaches the guidelines of the Companies Act. Let’s discuss the incorporation of a company in detail.
Incorporation of Company
The incorporation of a company is the process for registration of a company under the Companies Act. After incorporation, the company holds the title of a legal person and forms its sole identity. The company is registered through the registrar of the company also called ROC. ROC is administered by the ministry of corporate affairs who keep a check on all registration formalities and legal aspect of companies. The office of the company is established under the jurisdiction of the registrar. The companies which are incorporated on Indian soil should be administered by the Companies Act, 2013. The incorporation segregated the financial asset of the company from the owners and investors. The company is divided into three groups – public company and private company and company by single individual. Seven persons are needed to form the public company whereas a private company requires two or more individuals and finally a person who forms the company on its own comes under the one-person company.
There are certain conditions and documents required to register the company and give it a legal identity which is as follows
Name of Company
The first and foremost important aspect of a company is to have a name through which everyone can identify them. The name used to be unique and isn’t similar to previously established companies and gives the description of services provided by the company. The company name is to be present in the memorandum of association of the company. The public company should be named as ‘limited’ in the end while the private company is written with ‘Private limited’ in end.
Preparation of Memorandum
The memo is like a constitution of a company that includes all the rules and objectives of the company. The memorandum is one of the initial steps to establish a company. The memorandum should have the name of the company with the prescribed format for registration of name (name clause). The territory in which the company office will be registered is also included in the memo. The liability of members of the company is written whether it is unlimited or limited (liability clause). The company has a share capital, should list the division of shares with the members of the company (capital clause). A memo also prevents the company from engaging in unlawful practices and showcase that the company is registered with all the legal formalities.
Articles of Association
In simpler terms articles are guidelines to run the company which the members of the company should abide by. As per Section 2 (5) “articles refers to the association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act.”[1] The article of the association forms a legally binding contract between the company and its stakeholders. The articles are in the prescribed format given in Tables F, G, H, I and J in Schedule I which may be applicable to the company.
Why a Company Should be Incorporated?
- The company is unique in itself and not dependent on its members so members are not responsible for the action taken by the company. Having the individual legal entity help to free the members from legal obligation and the company will bear the punishment if any harm was done.
- Section 34(2) defines the feature of perpetual succession. The company is constant and stays the same even if the members or stakeholders are changed. After incorporation corporate become a legal entity and can acquire property, asset which will pass generation to generation. Owing to some reasons members or stakeholders die the company will still run by having a new member or remaining members.
- As we know the company is a legal person, it has the power to sue other companies or individuals if any harm was caused to the company. The stakeholders will stay away from any harm caused by the company to another company and the company will be liable for same.
- The company has the capacity to acquire the asset and properties for its welfare. No stakeholder has the right to use the company asset for personal gains. Incorporation leads to protect the company resources and if the person by fraud tampers the resources company has the power to prosecute them.
- Capital can be easily raised as a registered corporation can distribute shares in public. People believe more in the incorporated company as compare to an unregistered company. Banks easily lend loans to incorporations as they are more reliable.
All the above-mentioned reasons are sufficient to register the companies under the Companies Act, 2013.
Process for Incorporation of Company
Incorporation is a necessary process to give the company identity and help believe the other companies or individuals to invest in the company.
Incorporation of a company is done through the process of filling the simplified proforma for incorporating the company electronically (SPICe – INC- 32) with eMOA (INC-33), eAOA (INC-34). This SPICe Performa is used to register the Indian companies and interested parties have to abide by the rules given in the performa. A little amount of Fee is to be paid to the registrar of the company along with the form. If the registrar thinks the documents are incomplete and need some improvement then ROC will inform the respective persons to rectify the mistakes. Finally when all the needful requirements are done and fees are paid and all the documents are legally acceptable, then the registrar will issue the certificate of incorporation in the name of the company. The certificate will declare that the company is registered and legally enforceable to make a contract with others. A corporate identity number is provided along with the Certificate and the company will do business using that number only. Foreign companies who are interested to establish a company in India have to take assent from the reserve bank of India. After scrutinizing the company document RBI allows the company to open its branch within certain limits.
Punishment for False Misrepresentation
Companies Act also holds the punishment for wrongdoers who are involved in fraud, give a false statement and false evidence related to the company.
Punishment for Fraud
Section 447 deals with the punishment of fraud. Persons who are engaged in fraud in respect to a company that contains any act or concealment of facts or person abusing the position which he is holding, or with the intention to deceive or to have an undue advantage from other stakeholders shall be punishable. The punishment includes imprisonment for not below 6 months and which may be extended to ten years in accordance with the gravity of the offence committed.
Punishment for False Statement
Section 448 of Companies Act mention the punishment of false statement. Any individual making a false statement intentionally related to a report, certificate, documents of a company or omits any material fact is liable for punishment given under Section 447 of the Companies Act.
Punishment for False Evidence
If an individual knowingly gives fabricated evidence while examination on oath or any matter concerning the confidential information of the company will face rigorous imprisonment for not less than three years and it can be extended to seven years including a fine which can increase to ten lakh rupees.
Punishment for Wrongfully Withholding of Property
If any person illicitly gains the hold of any property with is against the rules of the company or harm the company in the future will be responsible for punishment under Section 452 which includes the fine of not less than one lakh rupees and imprisonment of two years.
Punishment for offenders is essential to prevent individuals from indulging in such acts. The concept of hefty fines and rigorous punishment given in the act are important measures for wrongdoers engaged in practices against the laws.
Conclusion
The incorporation of a company is long driven process which involves a lot of legal formalities and responsibilities associated with it but once the company is registered it gains more confidence from the shareholders and members of the company. The essential of incorporation is duly met for the easy formation of the company. Generally, the government puts a lot of taxes on corporates according to their profit but after incorporation companies are prevented from doing so.
References:
[1]Companies Act, 2013
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