Intensive Study Course on Company Law WIRC, ICAI CA ... upload Company formation.pdf · Formation...
Transcript of Intensive Study Course on Company Law WIRC, ICAI CA ... upload Company formation.pdf · Formation...
Formation of Companies, license under Section 25, Corporatization including
conversion under Part IX and Producer company
Intensive Study Course on Company Law
WIRC, ICAI CA Sanjeev Shah
15 March 2011
Contents
• Formation of company
• Section 25 company
• Part IX company: Conversion of partnership firm to a company
• Part IXA company: Producer company
2
Drivers for company formation
• New business
• Corporate restructuring
• Special purpose vehicle
• Joint-venture
• Not-for profit object
• Corporatization
5
Factors for company formation
6
Factors
Commercial /
Business
Regulatory
• Legal requirement
• Recognition
• Visibility etc.
• Company law
• Income Tax
• FDI & FEMA
• Stamp Duty
• Indirect taxes etc.
Types of companies – liability of members
8
Limited
By Guarantee
Liability
Unlimited
Having Share
Capital
By Shares
Not having Share
Capital
Guarantee Shares
Not having
Share Capital
Having Share
Capital
Types of companies
9
Minimum paid-up share capital of
`1,00,000
Restricts by its Articles:
Transferability of shares
Maximum Members – 50 (not including
past & current employees holding
shares)
Invitation to public to subscribe to
shares or debentures
Invitation or acceptance of deposits
from any person other than its
members, directors or their relatives
Private Company
[Section 3(1)(iii)]
Not a private company
Minimum paid-up share capital of
`5,00,000
a private company which is a subsidiary
of a company which is not a private
company
Public Company
[Section 3(1)(iv)]
Types of Companies
Deemed Public Company – concept abolished since December 2000
Particulars Private Company Public Company
Members: *
Minimum 2 7
Maximum 50 ** no limit
Directors (Individuals only):
Minimum 2 3
Minimum Paid-up Capital ` 1,00,000 ` 5,00,000
Transferability of shares and
marketability thereof
Restricted No restrictions
Issue of Prospectus Prohibited from inviting public
for subscription of its shares /
debentures etc.
Can issue Prospectus
Acceptance of deposit Prohibited from inviting
deposits from public except
from members, directors or
relative
Allowed to accept
* Partnership firms, society, corporation sole cannot be members. Firm may be a member of section 25
company.
** excluding joint-holders, employees, ex-employees
Key differentiators between private co. and public co.
10
Private Companies - Privileges
Illustrative privileges & exemptions
• No ceiling on remuneration to directors
• Can commence any business immediately after incorporation including
other objects
• Restrictions on transferability of shares
• Statutory meeting not required to be held
• Prohibition against loans to directors do not apply [section 295]
• Restriction on borrowings, inter-corporate loans and investments etc.
do not apply [section 372A]
• Profit and loss not available for public inspection
• Directors not liable to retire by rotation etc.
12
Section 4(6) & 4(7) – Scenario I
14
Foreign body corporate
(if incorporated in India –
public / private company)
Company
India
Outside India
Subsidiary
Foreign body corporate
Holding balance
shares
Private / public Company?
Section 4(6) & 4(7) – Scenario II
15
Foreign body corporate
(if incorporated in India –
private company)
Company
India
Outside India
Subsidiary
Foreign body corporate /
Individual
Holding balance
shares
Indian company /
Individual
Private / public Company?
Section 4(6) & 4(7) – Scenario III
16
Foreign body corporate
(if incorporated in India –
public company)
Company
India
Outside India
Subsidiary
Foreign body corporate /
Individual
Holding balance
shares
Indian company /
Individual
Private / public Company?
Brief Process for incorporation of a company
Obtain DIN & DSC for directors
Application for Availability of
Name
Drafting of incorporation
documents (MOA, AOA etc.)
Execution of incorporation
documents
Submission of incorporation
documents online
Payment of registration fees &
stamp duty
Follow-up Incorporation of
company
Certificate of Commencement of Business (for public
company)
18
Steps – Incorporation of Private / Public Company
Step 1: Obtain DIN & DSC
• Apply for –
−DIN for all proposed directors in Form DIN 1
− DSC from a certifying agency for -
at least 1 of the proposed directors and
a representative of promoter who will apply for the proposed name of the company
• Requirements for obtaining DIN and DSC
− Proof of identity
− Proof of residential address
− Proof of applicant’s father’s name
− Recent passport size photograph
− Certification
• DIN process simplified - General Circular No.5/2011 dated 4 March 2011 issued by MCA
− No physical submission of documents
− DIN will be approved by the system immediately online if DIN 1 is digitally signed
by the professional confirming the particulars/ docs
− In other cases, DIN cell will examine the application and clear within 1 – 2 days 19
Steps – Incorporation of Private / Public Company
Step 2: Name availability
• Decide on the 6 alternative names of the proposed company in the order of
preference
‒ Business activities
‒ Significance of pre-fix or suffix
‒ Keywords – minimum authorized share capital (see next slide)
‒ Comply with Guidelines for name availability
‒ No Objection
• Main objects
• Details of Promoters & Directors
• Name approved
‒ valid for period of 60 days
‒ further renewable for 30 days
20
Steps – Incorporation of Private / Public Company Minimum authorized share capital for use of Key words as part of name
21
Sr.No. Keywords Authorized
(Nominal) share
capital
In INR (million)
(i) Corporation 50.00
(ii) International, Global, Universal, Continental, Inter Continental,
Asiatic, Asia, being the first word of the name.
10.00
(iii) If any name at (ii) above is used within the name (with or without
bracket)
5.00
(iv) Hindustan, India, Bharat, being the first word of the name 5.00
(v) If any name at (iv) above is used within the name (with without
bracket)
0.50
(vi) Industries / Udyog 10.00
(vii) Enterprises, Products, Business, Manufacturing 1.00
The key words at (vi) and (vii) can be considered only if the company proposes to deal in / is already
carrying out various business activities
Steps – Incorporation of Private / Public Company
Step 3: Drafting of incorporation documents
• Memorandum of Association [MOA] – Schedule I, Table B or C or D or E
‒ Name
‒ Jurisdiction of Registered office
‒ Objects clauses
‒ Liability
‒ Authorized Share capital / Guarantee amount
• Articles of Association [AOA] – Schedule I, Table A or C or D or E
‒ rules and regulations for day-to-day management
• Transfer of shares, in case of a private company
• General meetings
• Board meetings etc.
• Documents of promoter entities
‒ Certificate of incorporation and memorandum and articles of association
‒ Board resolution(s)
• Forms
22
Steps – Incorporation of Private / Public Company
Step 4: Execution of incorporation documents
• Execution by promoters and first directors of the proposed company
• If execution outside India, notarization / apostilization or authentication by
Indian Embassy / Indian Consular Officer / Indian High Commission in the
country of execution
• Board resolution(s) and Proof of identity of non-resident promoter(s)
23
Steps – Incorporation of Private / Public Company
Step 5, 6 & 7: Submission of incorporation documents on MCA Portal;
Payment of stamp duty & registration fees; Follow-up
• Forms to be digitally signed by one of the first directors
• Certification by a practicing CA / CS / CWA
• Uploading of the Forms 1, 18 & 32
• Payment of stamp duty & registration fees
‒ Credit Card, Internet Banking, physical challan at bank
• No submission of physical copy to the ROC, where stamp duty payment is
electronic on MCA Portal
• Addendum
Circular no. HQ/9/2002-Computerization dated 9 March 2011 issued by MCA
• Payments upto ` 50,000 will be mandatorily required to be made through
electronic mode w.e.f. 27 March 2011
• Payments above ` 50,000
‒ Can be made through electronic mode / challan payment between the period 27th March 2011 to
1 October 2011
‒ Will be mandatorily required to be made through electronic mode w.e.f. 1 October 2011 24
Steps – Incorporation of Private / Public Company Simplified process - General Circular No. 6/2011 dated 8 March 2011 issued by MCA
• A separate category for approval of forms relating to incorporation shall be created by
ROC, which will have the highest priority for approval
• ROC will approve only Form-1 in regards to incorporation of company.
• Other incorporation forms viz. Form 18 relating situation of registered office of the
proposed company on its incorporation and Form 32 relating to appointment of first
directors shall be processed by the MCA system online.
• Average time taken for incorporation (post name approval) expected to be reduced to 1
day!
25
Steps – Incorporation of Private / Public Company Statutory costs for Company formation
26
• Registration fees is uniform across India
• Stamp duty depends upon the State where the registered office of the Company is located
* Above stamp duty is as per Bombay Stamp Act, 1958 assuming that the registered office of the Company is located in the
State of Maharashtra
Authorized (Nominal) Capital (INR)
Stamp Duty * (INR)
Registration Fees (INR)
500,000 1,200 17,200
1,000,000 2,200 27,200
5,000,000 10,200 108,000
10,000,000 20,200 158,000
100,000,000 200,200 608,000
250,000,000 500,200 1,358,000
500,000,000 1,000,200 2,608,000
500,000,000 2,000,200 5,108,000
Steps – Incorporation of Private / Public Company
Step 8: Incorporation
• Certificate of Incorporation – conclusive evidence
• Corporate Identification Number
‒E.g. U 99500 MH 2011 PTC 123456
27
Upon incorporation the subscribers to the Memorandum are
entered as members in the register of members [section 41(1)]; and
all money payable by any member to the company under the
memorandum or articles shall be a debt due from him to the
company [section 36(2)]
Steps – Public company, Post-Incorporation
Step 9: Certificate of Commencement of Business
• Public company to obtain Certificate of Commencement of Business before it
can commence any business activity
− Statement in lieu of prospectus
− Consent of the auditors
− Declarations from each directors
• Statutory report and statutory meeting
Some of the post-incorporation activities
• Application for PAN, TAN and other statutory registrations
• Opening of a bank account
• Getting in subscription money towards the shares subscribed to the MOA
• Stamping and Issue of share certificates
• Entries in the statutory registers
• Completion of formalities under FEMA, if applicable
• Appointment of auditors within 30 days 28
Section 25 company
• A limited company
− for promoting commerce, art, science, religion, charity or any other useful object,
and
− intends to apply its profits, if any, or other income in promoting its objects, and to
prohibit the payment of any dividend to its members
• Dispensation of the use of the word(s) "Private Limited" /
"Limited" as part of its name
• A section 25 company can be – − a private company or a public company
− Limited by guarantee or limited by shares
• A partnership firm can be a member
• 1 member 1 vote
30
Section 25 company
License from the Central Government [powers delegated to the
Regional Director] under section 25 of the company
• MOA as per Companies Regulations 1956
‒ Not Trade Union
‒ Use of Income and property for objects
‒ No remuneration or other benefits to members, subject to –
• Out-of-pocket expenses
• Reasonable interest on money lent
• Reasonable rent on property let
This does not affect remuneration to any officer other than a member.
• Any alteration to MOA and/ or AOA requires prior approval of RD
31
Section 25 company
Application in Form 24A
• Originally executed sets of MOA & AOA
• A declaration by a practicing CA / CS
• Details of directors, managers, secretary, promoters – names, addresses,
description, occupation,
• Details of companies/ associations/ other institutions in which promoter/
director/ manager/ secretary is a director/ member/ holding responsible
position, if any
• Details of the assets (with the estimated value thereof) and the liabilities as on
the date of the application / within 7 days of the application
• An estimate of the future annual income and expenditure including sources of
the income and the objects of the expenditure
• Brief description of the work, if any, already done OR work proposed to be
done
• Grounds of the application
• A declaration by each of applicant [promoter / director] on stamp paper
• Proof of identity of promoters 32
Section 25 company
• Within 1 week of making an application to the RD, publish an advertisement in
1 English News Paper in English and 1 regional daily in the regional language
‒ Draft MOA and AOA to be open for inspection
‒ Objection, if any, to be communicated within 30 days of the advertisement
33
Corporatization under Part IX – Additional requirements
• Minimum 7 members
• Last partnership deed to be similar to MOA
• Consent of all the Partners
• Date and place of general meeting
• Last audited accounts
• Last income tax assessment order / an acknowledged copy of the return of
income
• Names, addresses and occupations of all the partners of the Firm, not more
than six clear days before the application for registration
• No of shares to be taken up i.e. subscribed and paid-up share capital
• Form No. 39 to be digitally signed by 2 directors
35
Producer Company under Part IXA
• To extend the benefits of a corporate entity available to co-operative
societies engaged in primary sector such as farmers, milk producers etc.
• To link rural economy with emerging new opportunities
• To benefit the persons engaged in Primary Produce related activities
‒ Agriculture, Viticulture, Horticulture, Floriculture
‒ Animal husbandry
‒ Pisciculture,
‒ Forestry, Forest products
‒ Re-vegetation
‒ Bee raising
‒ Farming plantation products
‒ Handloom, handicraft , cottage industry etc.
37
Producer Company under Part IXA
38
Particulars Producer company
Type of company Private company limited by shares
Objects Specified
Activities More than 1 state
Minimum Members:
Individuals 10
Producer institutions [PIs] 2
Individuals + PIs 10 individuals + PI(s)
Directors (Individuals only):
Minimum 5
Maximum * 15
* Inter-State co-operative society incorporated as a Producer Company may
have more than 15 directors for 1 year from the date of its incorporation as a
Producer Company.
Producer Company under Part IXA
Additional filing requirements for an inter-state co-operative society
converting into a producer company
• A copy of the special resolution approved by not less than 2/3rd of the total
members of the society for its incorporation as a producer company
• A statement indicating –
‒ The names, addresses and occupations of the director or chief executive of the
society, by whatever name called
‒ List of members of the society
• A statement showing that the society is engaged in one or more objects that are
required for a producer company
• A declaration that the particulars in (a), (b) and (c) are correct, certified by 2 or
more directors of the society.
39
Producer company vs. Private company
Particulars Producer company [always a
private company]
Private company
Business activities Specified activities No specifications
Liability of members Limited by shares Limited by shares or
guarantee / Unlimited
Maximum Members No limit 50
Minimum Directors 5 2
Maximum Directors 15 12
Tenure of Directors Minimum 1 year, Maximum 5
years with eligibility for
reappointment
No limit unless otherwise
provided in AoA
Voting Individuals as members: 1
member 1 vote
Only PIs as members: 1st year
- as per shareholding;
Subsequently - as per
patronage
On show of hands: 1
member 1 vote
On poll: As per
shareholding
40
Producer company vs. Private company
Particulars Producer company [always a
private company]
Private company
Chief executive Mandatory N.A.
Expert / Additional
Director
Not exceeding 1/5th of total no.
of directors
N.A.
Voting by Expert /
Additional Director
Can be appointed as
Chairman, but cannot vote on
election of a Chairman
N.A
Notice of Board Meeting 7 days notice, shorter notice
possible with consent
As per AoA
Eligibility of a member Producer / PI No specification
1st AGM Within 90 / 365 days Within 18 months or 9
months from the close of1st
financial year
41
Glossary
Act - Companies Act, 1956
AGM - Annual General Meeting
AOA - Articles of association
DIN - Director Identification Number
DSC - Digital Signature Certificate
FDI - Foreign Direct Investment
FEMA - Foreign Exchange Management Act, 1999
MOA - Memorandum of Association
PAN - Permanent Account Number
RD - Regional Director
ROC - Registrar of Companies
42
Contact details
Sanjeev Shah, ACA, ACS
Tel: +91 (22) 6747 6023 (D) / 6619 8900 (B)
Mobile: +91 98201 58530
Fax: +91 (22) 6619 8901
e-mail: [email protected]
43