GURUKUL > Incorporating a company
"These articles were originally published in VentureKatalyst, India’s first e-zine aimed at entrepreneurs, started by Sanjay Anandaram in 1999. He brings two decades of experience as an entrepreneur, corporate executive, venture investor, faculty member, advisor and mentor. As a passionate advocate of entrepreneurship in India, he’s associated with Nasscom, TiE, IIM-Bangalore, and INSEAD business school in driving entrepreneurship. He can be reached at "
Incorporating a company
We take a detour in this issue. We've been talking about teams, plans, market knowledge, leadership, and the like the past 7 Gurukuls. Meanwhile, we kept hearing from a lot of impatient entrepreneurs who wanted to get going and not be bothered with the fluffy stuff. They were in effect saying "OK. I've this great idea that will change the world. How do I form a company, get acquired and become obscenely rich?" So in deference to those die-hards, we will take a detour and talk about incorporating companies - the hows, how longs and how muchs (sic). This Gurukul will be an unusually dry, boring and even confusing one - so don't say you weren't warned!
We've taken the help of noted Chartered Accountant Sudev Rao () in preparing this Gurukul (in the interest of full disclosure, we need to mention that Sudev Rao is JumpStartUp's Accountant). Just the points that need to be kept in mind are mentioned here so don't go around suing us and Sudev if your company doesn't get incorporated!
In the Internet Economy, names are key. Shakespeare clearly didn't envisage the Internet Economy.
So, choosing atleast 4 names (most preferred one and 3 others) for your company is step one. Then you need to fill up a Form called 1A and file it with the local (ROC) Registrar of Companies (don't forget to enclose Rs 500, or the ROC will forget all about your company names). Form 1A also includes some other info like names of atleast 2 Founders/Promoters, What does the company intend doing and How much total capital does this company intend raising? Though the company is yours, you can't go around naming it anything you want. There are some things to be kept in mind such as:
a. It should not sound similar to an existing company's name so as to be misleading
b. The name needs to be indicative of the nature of business envisaged
c. Names which include "National" or "President" which connotes Governmental stature would not be allowed.
Till recently you could not do certain things with the name. For example, no dotcom! But recent relaxations have ensured that:
1. The name could be in upper or lower case or a combination.
2. The name could include a numeral viz Birla 3M
3. The name could include a . (dot) for facilitating dot com ventures.
Registering the name takes about 2 to 3 weeks. Follow-ups at the ROC can help reduce the cycle time to say, 1 week!
After the name is obtained and you've finished printing your shiny new business cards and shown them to all, the Memorandum (MOA) and Articles of Association (AOA)on duly stamped paper and signed by the signatories to the Memorandum are to be filed. The MOA contains the name as approved by the ROC, the main objects, the ancilliary objects of the company and the other objects (if you want to know what objects are, you will have to approach your own Chartered Accountant!). It states what the authorised capital is and that the liability of the shareholders is limited. The Articles contain the rules of regulation of the company, the number of first directors, the size of the board, the procedure for transfer and transmission of shares, and other procedural provisions.
Once the MOA and AOA are submitted, the ROC calls the Founder/promoter or their duly authorised representative for discussion and acceptance / modification of the clauses of the MOA/AOA. Once corrections are made across the table, a Certificate of Incorporation is issued. i.e. the day the company comes into existence (which can be proudly hung on the wall behind your desk).
Generally, it takes about a week from filing the MOA/AOA to receiving the Certificate of Incorporation. Hence the whole process of incorporation from name availability can be from 2-5 weeks, depending on the follow up and the quality of the drafting of the MOA/AOA. The costs of incorporation are the stamp duties and ROC filing fees apart from professional charges paid to the Professional (i.e. the Chartered Accountant typically) who facilitates the incorporation. The stamp duty and filing fees are a function of the size of authorised capital as defined in the MOA.
Wait, before you can rush off to run your newly incorporated company, there are just a few more formalities (remember this is India) to complete. These formalities include getting registered for Professional Taxes ,Sales Taxes and under the Shop & Establishments Act. If import or export is envisaged then registration for an Import Export Code Number with The Directorate of Foreign Trade is required. If the nature of business is an industry for manufacture SSI, Excise registrations -if applicable- needs to be looked into. If the number of employees is 20 or more PF registration may also be required.
Now can I please go and run my company? Sure, as soon as its verified that you've maintained all the required documents. Such as? The Board Minutes book, the General Meetings Minutes book, all forms filed with the ROC and a Statutory Register for starters. And by the way, these are all required to be maintained at the registered Office of the company.
Now you know why we have Sudev Rao with us! We couldn't possibly have done all this by ourselves and still be running a company!!