What is the Incorporation of a company and its process?

What is the Incorporation of a company and its process

Every new company comes into the existence by following the process of incorporation. The incorporation has been formed the company as a separate legal/Artificial Person from its owner/investors.

What is Incorporation of a company:

Incorporation of a company means a legal process that is used to form a company or legal entity. It also refers to register a company under the company act 2013. The full procedure of the incorporation of the company is already in the Company Act, 2013. 

“Section 3 to 22 of the Companies Act, 2013 (hereinafter called the Act) read with Companies (Incorporation) Rules, 2014 made under Chapter II of the Act (hereinafter called ‘the Rules’) cover the provisions with regard to incorporation of companies and matters incidental thereto.”1

Process of Incorporation

We will discuss the process of incorporation of the company in this article step by step. This process is divided into four steps these are shown as the following: –

Promotion: 

This is the first step in the incorporation of the company. A person or group of persons agrees to start the business in the form of a company. These persons are known as promoters. 

Definition of the word promoter

Section 2 (69) of the Companies Act, 2013 defines the term ‘promoter’ as under:-

“Promoter” means a person—

  1. who has been named as such in a prospectus or is identified by
    the company in the annual return referred to in section 92; or
  2. who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or
  3. In accordance with whose advice, directions, or instructions the Board of Directors of the company is accustomed to act.

Provided that sub-clause (c) shall not apply to a person who is
acting merely in a professional capacity.

full definition checks the source link at the end of the article.

Incorporation or Registration of a Company:

The second step is to register the company under the Companies Act 2013 by following the prescribed procedure. Firstly, the promoter gets approval for the name of the company from the Registrar of Companies and then submit a Memorandum of Association, Articles of Association, Consent of first directors to act as directors, and a required all declaration. 

After the submission of all required documents to the Registrar, if he is satisfied with these all required documents as per the guidelines of the Companies Act 2013 then he will issue a certificate of incorporation to that company. thereafter company into existence. 

Capital Subscription:

Capital is the seed for every business. Kinds of Capital depends on the type of company form. If the Private company form then only private capital is allowed and if a public company forms then the company can invite the public to subscribe to its capital.

Commencement of Business

After getting a Certificate of incorporation the company has to obtain a certificate of ‘Commencement of Business’ within 180 days. A company has to submit a declaration to effect that every subscriber to the memorandum of association has paid the value of the shares agreed to be taken by him. 

References: –

  1. icsi.edu
  2. Class +2 Accountancy by Sultan Chand & Sons (P) Ltd.