This article has been written by Muskan Sharma pursuing a SEBI Grade A Legal Officers’ Test Prep course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

The Ministry of Corporate Affairs is one of the most important ministries of the Indian government. The MCA manages the Companies Act of 2013, the Companies Act of 1956, the Limited Liability Partnership Act of 2008, and other allied acts. It regulates the whole corporate sector in accordance with laws.

The Ministry of Corporate Affairs (MCA) is a government website or portal. It has all the details of companies incorporated in India. It contains every detail of every company and Limited Liability Partnership (LLP) incorporated. One can easily check information on the website, like the company registration number, incorporation date, directors of the company, balance sheet, annual returns, or any other document of the company. The website also accepts the payment of appropriate fees.

Background

As provided in the information on the MCA website, the Company Law, 1956, replaced the Company Law, 1913, providing a new basis for the corporation’s operation in independent India with the objective of consolidating the existing corporate laws. There was a need for streamlining this Act of 1956 as the corporate sector grew in pace with the economy of India. Since 1956, 24 amendments have taken place. Then a committee named the J.J. Irani Committee was appointed. The J.J. Committee made the recommendations for the  enactment of the Companies Act 2013, which is the existing law in India for corporate governance. This is a rule-based act. The Ministry of Corporate Affairs has retained certain powers and makes rules related to provisions.

Meaning of the company

A company is a legal person/ or entity. It is a voluntary association of people for a common purpose, with the ultimate objective of carrying out business. Also, they share the earnings between them. A company is capable of surviving beyond the lives of its members.

Section 2(20) of the Company Act 2013 defines the meaning of a company as a company incorporated under this Act or any previous company law.

The Company Act 2013 applies to the following companies and bodies:

• Companies incorporated under this Act or any previous Company Act.
• Insurance companies, except when provisions are inconsistent with the Insurance Regulatory and Development Authority Act (IDRA), 1999.
• Banking companies, except when provisions are inconsistent with the Banking Regulation Act, 1949.
• Companies in the supply and  generation of electricity, except when provisions are inconsistent with the Electricity Act, 2003.
• Any other company governed by any special act, except when provisions are inconsistent with such a special act.
• Such other bodies as the central government may notify, incorporated by any act for the time being in force.

Classification of company

On the basis of size

Companies can be classified into different categories based on their size, which is typically determined by factors such as annual revenue, number of employees, and assets. Here’s an expanded explanation of the classification of companies based on size:

1. Micro-enterprises:
   Micro-enterprises are the smallest category of companies. They typically have a limited number of employees, usually fewer than 10, and generate relatively low annual revenue. Micro-enterprises often operate in local markets and may be sole proprietorships or partnerships.
2. Small businesses:
   Small businesses are larger than micro-enterprises but still relatively small in terms of size. They typically have fewer than 50 employees and generate moderate annual revenue. Small businesses often have a more formal structure than micro-enterprises, with a board of directors and management team.
3. Medium-sized businesses:
   Medium-sized businesses are larger than small businesses and have a more significant impact on the economy. They typically have between 50 and 250 employees and generate substantial annual revenue. Medium-sized businesses often operate in regional or national markets and may have multiple locations or subsidiaries.
4. Large businesses:
   Large businesses are the largest category of companies and have significant market share and influence. They typically have more than 250 employees and generate high annual revenue. Large businesses often operate internationally and may have subsidiaries or branches in multiple countries.
5. Global enterprises:
   Global enterprises are the largest and most multinational of all companies. They have operations in multiple countries and may have significant influence on global markets. Global enterprises typically have tens of thousands of employees and generate billions of dollars in annual revenue.
6. Public and private companies:
   Companies can also be classified based on their ownership structure. Public companies are listed on stock exchanges, and their shares are traded by investors. Private companies are not listed on stock exchanges and are owned by individuals, families, or private equity firms.

Size classification of companies is important for several reasons. It helps policymakers and regulators develop appropriate policies and regulations for different types of businesses. It also allows investors to assess the risk and potential rewards of investing in different companies. Additionally, size classification can be used to track the performance of different sectors of the economy and identify trends and patterns.

On the basis of the number of members

Private company

As defined under Section 2(68) of the Act, a private company has a minimum of 2 members, a maximum of 200 members, a minimum of 2 directors, and a minimum amount of paid-up capital. The shareholders are only liable to the extent of their share capital. 

Public company

As defined under Section 2(71) of the Act, a public company is not a private company. It has a minimum of 7 members, no limit on the maximum number of members, and 3 minimum directors. A public company can raise capital from the public through the sale of shares. Its shares are traded on the stock exchange.

One- person company

As defined under Section 3(1)(c) of the Act, a one-person company is managed or owned by one person by providing the name of a nominee.

On the basis of control

Holding company

A holding company holds more than 50% of the shares of another company.

Subsidiary company

The company that is being controlled by the holding company is a subsidiary company.

Associate company

An associate company has significant influence, but not control, over its management or financial policies.

On the basis of liability

Company limited by shares

A company limited by shares is formed to conduct business and earn profits. It is owned by shareholders who hold a certain number of shares in the company.

Company limited by guarantee

In a company limited by guarantee, the liability of the members is limited. The limit of liability is up to the amount they have agreed to contribute in case the company is wound up.

Unlimited liability company

In an unlimited liability company, there is no limit on the liability of its members. The liability of its members may even extend to the entire amount of liability and debt of the company.

On the basis of the manner of access to capital

Listed company

A company whose shares of stock are traded on a public stock exchange is a listed company

Unlisted company

An unlisted company is a private company It is not listed on a public stock exchange.

Procedure for registration and incorporation of a company

Choose a business structure

The first step is to choose the appropriate business structure, like a private company, a public company, a one-person company, a limited liability partnership (LLP), a sole proprietorship, etc.

Select the business name

The next step is to select a name for the company. The name should not be identical to any other existing company and is not trademarked. After fulfilling the requirements, the Registrar of Companies of the State (a regulatory body)  registers the name of the company.

Obtain the Director Identification Number (DIN) and Digital Signature Certificate (DSC)

1. Director Identification Number (DIN):
   • The Director Identification Number (DIN) is a unique identification number allotted to every individual who intends to become a director of a company or is already a director.
   • It is mandatory for all directors to obtain a DIN.
   • To obtain a DIN, an individual needs to file an application with the Ministry of Corporate Affairs (MCA) in the prescribed format.
   • The application must be accompanied by supporting documents such as proof of identity, proof of address, and a passport-size photograph.
   • Once the application is processed and approved, the MCA will issue a DIN to the applicant.
2. Digital Signature Certificate (DSC):
   • A Digital Signature Certificate (DSC) is an electronic document that helps verify the identity of an individual or organisation engaged in online transactions.
   • It is used to authenticate the signer and ensure that the document has not been tampered with.
   • To obtain a DSC, an individual or organisation needs to apply to a Certifying Authority (CA) recognised by the Government of India.
   • The application must be accompanied by supporting documents such as proof of identity, proof of address, and a passport-size photograph.
   • Once the application is processed and approved, the CA will issue a DSC to the applicant.

Benefits of obtaining DIN and DSC:

• Legal Compliance: DIN and DSC are mandatory requirements for individuals who serve as directors of companies.
• Secure Transactions: DSC ensures the authenticity and integrity of electronic documents, making transactions more secure.
• Simplified Processes: DIN and DSC facilitate various online filings and approvals with the MCA and other government agencies.
• Reduced Paperwork: DIN and DSC eliminate the need for physical documents in many cases, saving time and resources.
• Enhanced Transparency: DSC helps prevent fraudulent activities and promotes transparency in business dealings.

Registration on the MCA portal

To initiate the registration process of a company through the Ministry of Corporate Affairs (MCA) portal, the submission of the SPICe+ form is crucial. This form, abbreviated as Simplified Proforma for Incorporating Company electronically Plus, serves as a comprehensive web form that streamlines various services under a single window. It encompasses a total of 10 services, offering convenience and efficiency to aspiring entrepreneurs.

SPICe+ acts as a central hub for multiple corporate processes, including incorporation, allotment of Director Identification Number (DIN), Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), and generation of Employee Provident Fund Organization (EPFO) and Employee State Insurance Corporation (ESIC) registration numbers. This integrated approach minimises the need for submitting separate forms for each service, saving valuable time and resources.

Upon accessing the MCA portal, users are guided through a step-by-step process to fill out the SPICe+ form. Key information such as company name, registered office address, directors’ details, share capital structure, and proposed business activities must be accurately provided. Additionally, essential documents like the Memorandum of Association (MoA) and Articles of Association (AoA) must be attached to the form. The MoA defines the company’s purpose, objectives, and rules, while the AoA outlines the internal governance structure and regulations.

Once the SPICe+ form is successfully submitted along with the requisite documents, the MCA portal validates the information and initiates the verification process. This may include scrutiny by officials from the Registrar of Companies (ROC) to ensure compliance with legal and regulatory requirements. If any discrepancies or missing information are identified during the verification stage, the applicant will be notified and given an opportunity to rectify them.

Upon successful verification, the MCA portal generates incorporation documents such as the Certificate of Incorporation and the Certificate of Commencement of Business. These documents serve as legal proof of the company’s existence and authorise it to commence operations.

The SPICe+ form and its associated services have revolutionised the process of starting a business in India by simplifying procedures and reducing the time required for registration. It aligns with the government’s efforts to promote ease of doing business and has significantly contributed to the growth of entrepreneurship in the country.

Certificate of incorporation

Lastly, once the documents are submitted, they undergo a thorough examination by the registrar of companies. This process is crucial to ensuring that all the necessary requirements and regulations have been met. The registrar meticulously scrutinises each document, verifying its authenticity and accuracy. During this examination, the registrar pays particular attention to essential aspects such as the company’s name, its registered address, the names of its directors and shareholders, and their respective shareholdings. Additionally, the registrar reviews the company’s Memorandum and Articles of Association, which outline the company’s objectives, governance structure, and operational rules. This examination process helps safeguard the integrity and legality of the company’s incorporation.

After successfully authenticating the company documents and confirming that they comply with all applicable laws and regulations, the registrar proceeds to issue a Certificate of Incorporation for the company. This certificate serves as official documentation that the company has been duly registered and recognised as a legal entity. The Certificate of Incorporation typically includes essential information such as the company’s name, registration number, date of incorporation, and the names of its directors. It acts as a foundational document, providing legal recognition to the company and allowing it to commence its operations.

Incorporation of the company

As per information on the MCA website, the following needs to be remembered while incorporating a company:

• The process of incorporation should be based on the correct information.
• The contents of the Memorandum of Association should be part of the substantive law and not in the Rules.
• Filings should be identifiable through digital signatures and kept securely.
• The process of registration should be compatible with the e-government initiative taken up by the government and speedy.
• At the time of incorporation, companies should be required to make and authenticate detailed disclosures about promoters and directors of the company.
• The promoters and directors should disclose information that authenticates their proof of residence and identity through supporting documents like photographs, PAN numbers, passports, affidavits, etc.
• Every company should be obliged to have a correctly registered office along with proof of address in a manner that enables access both physically and by postal service
• If agents or professionals are empowered, it should be on the basis of suitable power of attorney and should not relieve the principals of their liability.
• Directorships by the promoters/directors of other companies should be declared at the time of incorporation.
• If it is found that incorporation has been done under false or misleading information, stringent consequences should follow.
• The information provided at the time of registration should determine the address of the company. It should be the duty of the company to inform customers of any change of address within a fixed time period.
• To bring the persons behind such companies to book and disgorge their ill-gotten gains by lifting the corporate veil, the law should be amended.

Certificate of commencement of business

Before a public company can commence any business operations, it must obtain a certificate of commencement of business from the relevant regulatory authority. This certificate serves as legal documentation that the company has met all the necessary requirements and is authorised to conduct business.

1. Process of obtaining the certificate: To obtain the certificate of commencement of business, the public company must typically submit various documents and information to the regulatory authority. This may include the company’s Memorandum of Association (MOA), Articles of Association (AOA), and details of its directors and shareholders.
2. Legal implications: Without a certificate of commencement of business, a public company may face legal penalties and restrictions. It may not be able to enter into binding contracts, open bank accounts, or engage in other essential business activities.
3. Certificate of incorporation: Unlike a public company, a private company does not require a certificate of commencement of business. Once it has received its certificate of incorporation from the relevant regulatory authority, it can legally commence business operations.
4. Process of obtaining the certificate of incorporation: To obtain the certificate of incorporation, a private company must typically submit its MOA and AOA to the regulatory authority. It may also need to provide information about its directors and shareholders. The certificate of incorporation serves as legal proof that the private company exists as a separate legal entity. It enables the company to enter into contracts, own property, and conduct business activities.

Business activities and memorandum of association

Regardless of whether a company is public or private, it must conduct its business activities in accordance with the rules laid down in its Memorandum of Association (MOA). The MOA outlines the company’s objectives, scope of operations, share capital, and other essential information.

1. Compliance with MOA: All business activities undertaken by the company must align with the provisions of its MOA. This ensures that the company operates within its legal boundaries and protects the rights of its shareholders.
2. Amendments to MOA: If a company wishes to change or expand its business activities, it may need to amend its MOA. Such amendments typically require the approval of shareholders and compliance with the relevant legal procedures.

Conclusion

The forms of corporate organisations keep changing with the growth of the economy and the increase in complexity of business operations. Unnecessary controls, rigid structures and regulations inhibit the risk-taking initiatives of entrepreneurs. Small companies and private companies, who do not generally go for public issues or deposits for their financial requirements but utilise their personal or in-house resources, need to be given flexibility, compliance at a low cost and freedom of operation. Equally, public companies that access capital from the public need to be subjected to a more stringent regime of corporate governance.