Types of Business Entities
Private Limited Company
Public Limited Company
Unlimited Company
Partnership - Limited and Unlimited
Sole Proprietorship
Applicable law
The Indian Companies Act of 1956
Forming a Company in India
The Companies Act of 1956 sets down rules for the establishment of both public and private companies. The most commonly used corporate form is the limited company, unlimited companies being relatively uncommon. A company is formed by registering the Memorandum and Articles of Association with the State Registrar of Companies of the state in which the main office is to be located.
Foreign companies engaged in manufacturing and trading activities abroad are permitted by the Reserve Bank of India to open branch offices in India for the purpose of carrying on the following activities in India:
· to represent the parent company or other foreign companies in various matters in India, for example, acting as buying/selling agents in India, etc.;
· to conduct research work in which the parent company is engaged provided the results of the research work are made available to Indian companies;
· to undertake export and import trading activities;
· to promote possible technical and financial collaboration between Indian companies and overseas companies.
Application for permission to open a branch, a project office or liaison office is made via the Reserve Bank of India by submitting form FNC-5 to the Controller, Foreign Investment and Technology Transfer Section of the Reserve Bank of India. For opening a project or site office, application may be made on Form FNC-10 to the regional offices of the Reserve Bank of India.
A foreign investor need not have a local partner, whether or not the foreigner wants to hold full equity of the company. The portion of the equity thus not held by the foreign investor can be offered to the public.
Incorporating a Company:
Approval of Name: The first step in the formation of a company is the approval of the name by the Registrar of Companies (ROC) in the State/Union Territory in which the company will maintain its Registered Office. This approval is provided subject to certain conditions: for instance, there should not be an existing company by the same name. Further, the last words in the name are required to be "Private Ltd." in the case of a private company and "Limited" in the case of a Public Company.
Memorandum and Articles, etc.:
The Memorandum of Association and Articles of Association are the most important documents to be submitted to the ROC for the purpose of incorporation of a company. The Memorandum of Association is a document that sets out the constitution of the company. It contains, amongst others, the objectives and the scope of activity of the company and also defines the relationship of the company with the outside world.
The Articles of Association contain the rules and regulations of the company for the management of its internal affairs. While the Memorandum specifies the objectives and purposes for which the Company has been formed, the Articles lay down the rules and regulations for achieving those objectives and purposes.
The ROC will give the certificate of incorporation after the required documents are presented along with the requisite registration fee, which is scaled according to the share capital of the company, as stated in its Memorandum. A private company can commence business on receipt of its certificate of incorporation.
A public company has the option of inviting the public for subscription to its share capital. Accordingly, the company has to issue a prospectus, which provides information about the company to potential investors. The Companies Act specifies the information to be contained in the prospectus.
The prospectus has to be filed with the ROC before it can be issued to the public. In case the company decides not to approach the public for the necessary capital and obtains it privately, it can file a "Statement in Lieu of Prospectus" with the ROC.
On fulfillment of these requirements, the ROC issues a Certificate of Commencement of Business to the public company. The company can commence business immediately after it receives this certificate.
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Private Limited Company
A private company is a company which has the following characteristics:
shareholders’ right to transfer shares is restricted;
the number of shareholders is limited to fifty; and
an invitation to the public to subscribe to any shares or debentures is prohibited.
Public Limited Company
A public company is defined as a company which is not a private company. The following conditions apply only to a public company:
It must have at least seven shareholders.
A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called "trading certificate".
It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.
A public company is required to have at least three directors.
It must hold statutory meetings and obtain government approval for the appointment of the management.
There are several other provisions contained in the Companies Act 1956 which are applicable only to public companies and should be consulted.
In addition to this,
Procedure for Starting of New Institutions and Additional Courses
Managements desiring to establish new institutions shall get the application from the AICTE (Chennai Office) on payment of the prescribed fees (presently Rs.5000/-.) The applications in the AICTE format for starting new Engineering Colleges/Polytechnics and for starting new courses in the existing institutions are to be submitted to the AICTE, State Government, University etc. as indicated in the formate.
The infrastructural facilities with regard to the availability of land, buildings and finance provided by the applicants will be physically verified by an Expert Committee constituted by the Director of Technical Education on payment of inspection charges and the report will be submitted to the Government with suitable recommendation for the issue of No Objection Certificate. Based on the No Objection Certificate, the AICTE will issue by the viability letter and physically verify the infrastructural facilities available for establishing the institution. Final approval will be granted based on the merit of the recommendations of the Inspection Committee. After getting the approval, the management has to approach the University or State Board of Technical Education for the affiliation.
Procedure of Starting of Commerce Institutions
Commercial Institutions imparting training in Typewriting, Shorthand and Accountancy subjects get temporary/permanent approval from the Directorate of Technical Education, Chennai. For yearly approval, the cost of application from is Rs.100/- and for permanent approval Rs.250/-. The rules and regulations for according approval of commerce institutions are furnished to the applicants who seek approval of this Department for starting such institutions.
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