Ans.

Setting up most businesses requires a common set of policies to be followed.

Constitution of the business

In India, normally businesses are run through proprietorship concerns, partnership concerns and public and private limited companies.

Proprietorship concern is the organisation which is owned by an individual.

Partnership concern is the association of more than one person and the capital invested and the profit sharing are decided as per mutually agreed terms. It is advisable that the partnership deed registered with Registrar of Partnership Firms.

Private limited company is the commonly used form of the business where the operations are relatively higher and involves risk. A private limited company can be formed by a minimum of two persons and the maximum of 50 persons. Each member shall have the liability limited to their holding in the company. The profit in the form of dividend will be distributed commensurate with the capital invested in the form of equity.

Public limited company is formed when the operations are quite large and involve substantial risk. A public limited company can be formed with a minimum of 7 persons. The maximum number in this case is unlimited. Here again each member will have the liability limited to the extent of their holding in the company. The profit is also shared in the form of dividend in accordance with the investment made in the equity of the company.

Ans.

The first thing you need to do to set up any business in India is to form a company. The Companies Act, 1956 sets down rules and regulations for establishing public and private limited companies. The most common corporate form is the limited company.

Approval of the name of company

For the purpose, initially the name will have to be approved with the Registrar of Companies (ROC). In the state/Union Territory in which you will maintain its registered office. The approval is subject to certain conditions—no existing company should have the same name, and the name must incorporate the words “Private Ltd” at the end, if a private company, and “Limited” if public.

Approval of Memorandum and Articles of Association

These are the most important documents that you will submit to the ROC. The Memorandum sets out the constitution of the company (name of the company, the nature of liability of its members), and includes its objects (the purpose of the formation of the company, the parameters within which it has to carry out its activities etc). The company cannot do any act that is outside the object for which it is formed, even if all the shareholders approve it unanimously. The Articles of Association are the rules and regulations for managing the company’s internal affairs and for achieving its specified objects and purposes.

You also have to pay a registration fee, scaled according to the company’s share capital, which is stated in its Memorandum. Once you obtain all the documents described above, and the registration fee, the ROC grants the certificate of incorporation to you (the applicant).

Invite Subscription To Share Capital

Once you get the certificate of incorporation, if yours is a private company, you can start business straight away. If yours is a public limited company, you can invite the public for subscription to your share capital. In accordance with the Companies Act, 1956 you must issue a prospectus, giving information about your public limited company. The prospectus must be filed with the ROC before issuance to the public for approval. But if you decide to obtain capital privately, you can file a “Statement in Lieu of Prospectus” with the ROC. You can start business after obtaining a Certificate of Commencement of Business from the ROC.