Starting a business is never easy. One way to check out whether you have what it takes to run one is to try and register a company of your own. If a visit to the local Registrar of Companies (RoC) office with its chaotic ambience and surly staff doesnt put you off and you actually manage to register your company within a month, then the chances are that you will make a reasonably good businessperson. And there are a lot of them around: Sameer Biswas, RoC for Delhi and Haryana, says his office gets 300 applications for registering companies every month.
But seriously, how does one go about registering a company of ones own? That depends on whether you want to set up a partnership firm, a private limited company or a public limited company. A partnership firm doesnt need to be registered you can go ahead and start your business even on an oral agreement with your partners. The Indian Partnership Act, however, lists some limitations: a trading partnership firm, for example, cannot have more than 20 partners, while a banking firm cannot have more than 10. If they do, the Act says they should convert themselves into a company.
The complications begin when it is a company that you want to set up, not a partnership firm. There are many reasons why you may prefer to start a company. For one, banks and financial institutions prefer to deal with companies. For another, it gives your business a better profile. But do you want to start a private, or a public, limited company? A public limited company should have seven or more shareholders, while a private limited company can do with just two but not more than fifty.
After you have decided on the kind of company you want, the process of registration starts with deciding on a name for your company. You can propose four possible names in order of preference but the names could be rejected if a company has already been registered under a similar name. As a rule, it makes sense to opt for a name that reflects the essence of your business. Aslam Shems defends his christening his internet service provider company Shems Combit: I came up with the word Combit combination of communication and ambit to indicate a company covering the range of possible communications.
To get the name registered, you need to make a cash payment of Rs 500 and an application on Form 1A. If the names get rejected, you will need to make a fresh application along with the Rs 500 fee. To avoid this, you can sift through the names listed on the computers in the RoCs office. Computerisation has also made processing of applications easier so a process that previously took 14 days is now over within three working days.
If you think that puts the much awaited certificate in your hands, think again. It will still take you at least a week of repeated visits to lay your hands on it.
The next step involves drafting a Memorandum of Association (MoA). There is no prescribed form, but drafts are available with agencies dealing in government publications. An MoA should mention the name of the company, its registered office, its main and ancillary objects, statement of liability and share capital. To start a private limited company, you also need a subsidiary document called the Articles of Association which must specify that the transfer of shares is restricted, that the number of shareholders cannot be less than two or more than fifty, and that its shares or debentures will not be offered to the public. Since these are legal documents that need to be drawn up carefully, it makes sense to seek the help of a chartered accountant, a solicitor or an advocate well-versed with the rules.
Both the MoA and the Articles have to be printed and divided into numbered paragraphs, though even computer printouts will do. These documents need the signatures of at least two subscribers and a witness. They can also be signed by agents for the subscribers, provided they are authorised to do so by a power of attorney. The documents are then stamped according to the Indian Stamp Act or the relevant State Act. These need to be filed and registered with the RoC within three months of the date of registration of the name. The registration fee depends on the authorised share capital you decide upon you could pay anything from Rs 400 to Rs 80 lakh.
You also need to submit a declaration of compliance signed by an advocate, attorney or a chartered accountant, a notice indicating the address of the registered office, particulars of the directors, managers or secretary (in duplicate), a declaration authorising one of the subscribers to file the documents, and the original letter by the RoC registering the company name. If all the documents registered are in order you can hope to see the certificate of incorporation in two to three weeks.
You thus need at least a month from the start of the registration process to be able to set all the wheels in motion. Just so long as it is not an industry you are setting up. The reason: You need to seek a special industrial licence from the central government under the Industries (Development and Regulation) Act which is another ballgame altogether.
