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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 organization 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.
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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.
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