Incorporation of a Company Under the Companies Act, 2013

A company comes into existence under the Companies Act, 2013 when the documents listed in Section 7 are filed with the Registrar of Companies, the Registrar registers them and issues a certificate of incorporation with a corporate identity number. From the date in that certificate, Section 9 makes the subscribers a body corporate with perpetual succession, able to own property, contract, and sue and be sued in its own name. The law does not stop there: Section 10A and Section 12 add duties after incorporation that a company must meet before it can actually do business.

This explainer is written for B.A. LL.B. and LL.B. students preparing for company law papers, and for anyone, say a family running a textile shop in Nagercoil, who is thinking of turning a business into a private limited company. Knowing the sequence of steps and the sections behind them makes both the exam answer and the real filing far easier.

Which law and which sections apply?

The governing statute is the Companies Act, 2013 (Act No. 18 of 2013). The incorporation provisions sit in Chapter II, and the procedural detail is in the Companies (Incorporation) Rules, 2014, which India Code lists among the rules made under the Act. The core sections a student must know are:

• Section 3: formation of a company for any lawful purpose.
• Section 4: the memorandum of association and reservation of name.
• Section 7: the documents filed for incorporation and the consequences of false information.
• Section 9: the effect of registration.
• Section 10A: commencement of business, inserted in 2019.
• Section 12: the registered office.

The Act has been amended several times. Always read these sections in their current form on India Code or the Ministry of Corporate Affairs (MCA) website rather than relying on an old bare act.

Who can form a company?

Section 3(1) allows a company to be formed for any lawful purpose by seven or more persons for a public company, two or more persons for a private company, or one person for a One Person Company, which must be a private company. The word "lawful" matters: an object that is illegal cannot be the basis of incorporation at all.

Students often still write that a private company needs one lakh rupees and a public company five lakh rupees of paid-up capital. That was the original 2013 position. The Companies (Amendment) Bill, 2014, passed by Parliament in May 2015, removed the minimum paid-up capital requirement for both, and also made the common seal optional.

What are the steps to incorporate?

1. Reserve a name under Section 4(4) and 4(5). The original Act reserved a name for sixty days from the application. The Companies (Amendment) Bill, 2016 (passed in December 2017) changed this to twenty days from the date of approval, or such other period as may be prescribed, so check the current rule before you advise anyone. Wrong information in the name application can lead to cancellation of the name and a penalty.
2. Prepare the memorandum and articles. These are signed by all subscribers and filed under Section 7(1)(a).
3. File the Section 7(1) documents with the Registrar within whose jurisdiction the registered office is proposed. These include a declaration by a professional (an advocate, chartered accountant, cost accountant or company secretary in practice) that the requirements of the Act are complied with; a declaration (earlier an affidavit) from each subscriber and first director that they have no relevant conviction and have not been found guilty of fraud or breach of duty in the preceding five years; a correspondence address; and particulars and identity proof of subscribers and first directors, including the Director Identification Number.
4. Receive the certificate of incorporation. Under Section 7(2) and 7(3), the Registrar registers the documents, issues the certificate and allots a corporate identity number.

In practice, these filings are made online on the MCA portal, which publishes guidance and FAQs on the SPICe+ incorporation form. Forms, attachments and fees change, so readers should check the current version and fee schedule on mca.gov.in before filing.

What happens if incorporation is obtained by fraud?

Section 7(5) makes anyone who furnishes false particulars or suppresses material information liable for action under Section 447, the fraud provision of the Act. Section 7(6) extends that liability to promoters, first directors and the professional who made the declaration where the company itself was incorporated on false information. Section 7(7) lets the National Company Law Tribunal, on application, regulate the management of such a company, make members' liability unlimited, remove its name from the register, order winding up or pass other orders, after giving the company a reasonable opportunity of being heard.

What must a company do after incorporation?

Section 12(1), as amended through the 2016 Bill (which replaced the original fifteen-day rule), requires a registered office capable of receiving communications within thirty days of incorporation. Section 10A, introduced by the Companies (Amendment) Bill, 2019 and passed by Parliament in July 2019, says a company with share capital incorporated after that amendment cannot commence business or exercise borrowing powers unless:

• a director files a declaration within 180 days of incorporation that every subscriber has paid the value of the shares agreed to be taken; and
• the company has filed verification of its registered office under Section 12(2).

Default attracts a penalty of fifty thousand rupees on the company and one thousand rupees per day (capped at one lakh rupees) on each officer in default. If no declaration is filed within 180 days and the Registrar believes the company is not carrying on business, the Registrar may start striking off under Chapter XVIII. Section 12(9) also allows physical verification of the registered office.

How have the courts read the effect of incorporation?

The foundation is Salomon v A Salomon & Co Ltd [1897] AC 22, decided by the House of Lords. Once a company is validly incorporated, it is a person distinct from its members, and its debts are its own, even where one person holds almost all the shares. Section 9 of the 2013 Act puts the same idea into Indian statute. Indian courts accept the principle and also recognise exceptions where the veil may be lifted. Read the leading Supreme Court decisions on lifting the veil in a law report or on the Supreme Court website and cite them from the judgment itself.

How should you write this in an exam?

• Open with a one-line definition and cite Sections 3, 7 and 9.
• Set out the steps in order: name, documents, certificate, CIN, then post-incorporation duties under Sections 10A and 12.
• Show you know the amendments: no minimum capital, optional common seal, declarations instead of affidavits, Section 10A.
• Close with Salomon and the consequence of separate personality, and mention Section 7(7) for fraud.

Students who want structured coverage of company law can see the programmes page for where it sits in the curriculum.

Sources

• Companies Bill, 2012 as passed by Lok Sabha (PRS): original text of Sections 3, 4, 7, 9 and 12.
• Companies (Amendment) Bill, 2016 (PRS): changes to name reservation, declarations and registered office.
• Companies (Amendment) Bill, 2019 (PRS): text of Section 10A and Section 12(9).
• PRS Bill Track: Companies (Amendment) Bill, 2019: passed by Lok Sabha on 26 July 2019 and Rajya Sabha on 30 July 2019.
• PRS Bill Track: Companies (Amendment) Bill, 2014: removal of minimum paid-up capital and common seal.
• India Code: Companies Act, 2013: rules and notifications under the Act, including the Companies (Incorporation) Rules, 2014.
• Ministry of Corporate Affairs: the official portal for SPICe+ incorporation filings.