Understanding Company Registration & Compliance Rules

A company is registered in accordance with the Companies Act and is a separate legal entity, distinct from both its shareholders, directors and managers. The liability of the shareholders is limited to the amount paid or unpaid on issued share capital. A company has perpetual existence. The owners and management is separated. The Companies Act, 1956 does, however, place many restrictions on the company for the compliance. It must maintain certain books of accounts, registers, and file an annual return, annual compliance with the registrar of companies which includes the accounts as well as details of directors and mortgages.

Types of Companies

There are three types of companies keeping in view their nature, which is outlined below

1. Companies with Limited Liability

Companies, where the liability of its members is limited to the extent of amount unpaid on the shares, held by them in the Company. For e.g. A has purchased 10 shares of Rs 10/each and therefore his total liability towards the company is limited only upto Rs 1000. Generally, more than 90% of the companies are incorporated with limited liability.

2. Companies with Unlimited Liability

Company with unlimited liability is just like partnerships, where the liability of partners is unlimited and may extend to their personal assets. In case of such companies, the liability of its member is unlimited for the purpose of all the liabilities. This type of company is generally, not popular form of business organization.

3. Company limited by Guarantees

• Only units approved under SEZ scheme would be permitted to be located in SEZ.
• The SEZ units shall abide by local laws, rules, regulations or bye-laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labour laws as may be locally applicable.
• Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and procedures applicable to such SEZ.
• The SEZ should have a minimum area of 1000 hectares and at least 25 % of the area is to be earmarked for developing industrial area for setting up of units.
• Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.
• Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.
• Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is given in Appendix 14-II.N of Handbook of Procedures Volume I.

The aforesaid companies are further classified into the following:

One Person Company

The concept of One Person Company [OPC] is a new vehicle/form of business, introduced by The Companies Act, 2013 [No.18 of 2013], thereby enabling Entrepreneur(s) carrying on the business in the Sole-Proprietor form of business in a corporate Framework.

One Person Company is a hybrid of Sole-Proprietor and Company form of business, and has been provided with concessional/relaxed requirements under the Act.

Procedure in brief

• Obtaining DIN and DSC for the proposed director. (Mandatory)
• Applying for company name approval.
• Drafting and stamping of MOA and AOA.
• Submission of documents and obtaining of Certificate of Incorporation.

Requirements for obtaining DIN and DSC

• Copy of PAN card.
• Copy of address proof (voter's ID card; telephone bill; electricity bill; residential agreement; bank statement; passport).
• 5 Photographs (passport size).
• DIR 4 (verification document)
• Personal details--Details of own name and father's name as appearing in PAN (no abbreviations allowed), occupation, educational qualification, place of birth, mobile number, email id;

Information required for DIN

Private Limited Company

Private Limited Company means a Company formed with the word 'private' in its name and the Articles of Association of whom contains the following restrictions

• Restricts the right to transfer its shares
• Limitation to the number of shareholders to 50 (excluding employees and former employees)
• Prohibition towards invitation to the public to subscribe to shares and debentures
• Prohibits acceptance of deposits from persons other than shareholders, directors and their relatives.
• The minimum paid up capital for a private Company would be Rs. 100,000.

Private Companies are also relieved from complying a large number of provisions of the Companies Act such as

Benefits of Private Limited Company

• Continuity of existence
• It is a separate legal entity meaning assets can be purchased in its own name
• Limited liability
• Less legal restrictions
• Recognition while dealing with foreign countries as a Corporate entity.
• No limit for managerial remuneration.

Limitations of Private Limited Company

• Shares are not freely transferable
• Not allowed to invite public to subscribe to its shares
• Scope for promotional frauds
• Undemocratic control
• Taxability of Income of the Company as well as the dividend distribution in the hands of the Company

Steps for Formation of Private Limited Company

Public Limited Company

A Public company is company that has issued securities through an initial public offering (IPO) and is traded on at least one stock exchange or in the over the counter market. Although a small percentage of shares may be initially "floated" to the public, the act of becoming a public company allows the market to determine the value of the entire company through daily trading.

Features

• Legal entity
• Acts in its own name according to the will of board directors
• Legal personality
• Raises capital through shares
• Shares its profits among shareholders

Benefits of a Public Company

• Public companies are normally valued higher than private companies
• Raising capital requires less time and expense.
• Founders suffer less stock dilution when raising capital.
• Making acquisitions with stock is easier and less expensive.
• Stock and stock options are useful in attracting management.
• Management and employee stock options have more value.
• More liquidity for founders, minority shareholders, and investors.
• Added prestige and visibility with customers, suppliers, employees and the financial community.

Limitations of a Public Company

• Difficulty of formation
• Delay in decisions
• Lack of secrecy
• Legal formalities
• Lack of motivation
• Unhealthy speculation

Suitability

A public company is suitable where the volume of business is large, area of operation is widespread, the risk involved is high and there is a need for huge financial resources and manpower. It is also preferred when there is need for professional management in its operations. In certain businesses like banking and insurance, joint stock company form is the most suitable. Now-a-days, it is preferred form for most areas of business because of the preference for operating on large scale.

For some specific business purposes, Public & Private Companies takes the form of the following:

Producer Company

The Companies has prescribed separate set of provisions for companies which are engaged in activities related to agriculture and all companies registered as per these provisions are called as Producer Company. Producer Company can engage in any of the following activities:

• Production, harvesting, procurement, pooling handling, marketing, selling, export and import of primary produce of the Members and services for their benefit,
• Processing including reserving, drying, distilling, brewing etc of produce of its members
• Rendering technical services, consultancy services, training, research and development and promotion of interest of its Members,
• Generation, transmission and distribution of power, revitalization of land and water resources, their use, conservation and communication relatable to primary produce,
• Insurance of producers or their primary produce
• Promoting techniques of mutual assistance
• Distilling packaging of produce of its Members
• Activities ancillary or incidental to any of the above activities

Any ten or more individuals, each of them being a producer or any two or more producer institutions, or a combination of ten or more individuals and producer institutions may form a Producer Company

Producer means a person engaged in any of the activity connected with the following:

• Produce of farmers, arising from agriculture (including animal husbandry, horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation, bee raising, farming plantation product)
• Person engaged in handloom, handicraft and other cottage industries
• By product arising from above activities
• By product arising from any activity which is ancillary to the above activity

Producer Institution means a Producer company or any other institution having only producer or producers or producer company (s) as its member whether incorporated or not and have the objects of producer company and which agrees to make use of services provided in articles of Producer Company.

Non Profit Associations

Under the Companies Act, 1956 you can also register a company for carrying on business , not for the purpose of earning profit but to serve mankind at large. Such type of company is generally called as Association not for profit or section 25 Company.

Association not for profit or section 25 companies can only be formed for the purpose with the following objectives