Businesses play a vital role in the development of the nation as they provide employment, money flow, development, etc., and to protect them, the government provides various kinds of provisions and protection which help the businesses to run smoothly, but the government also imposes responsibilities so that they maintain the quality.
All matters related to business are governed by the governing law of the nation, and the law provides different types of business forms, such as sole proprietorship, partnership, company, etc., so that entrepreneurs can run their business according to their convenience and take advantage of them. All types of business forms have their own characteristics that differentiate each other.
A company is a type of business form governed by the governing law of the nation. In India, the Companies Act, 2013 governs the matters related to companies. For a business to become a company, it is incorporated as per the provisions mentioned under the company law. The company is further classified into several parts so that the entrepreneur can choose the right type of company and form it.

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Incorporation of a Company
Incorporation of a company means setting up a business as a company under the law and is also commonly called the formation of a company. In India, the incorporation of a company takes place under the Companies Act, 2013, which describes all the provisions from the incorporation of a company to the winding up of the company. Incorporation of a company goes through various stages, and all the stages are mandatory as per the provisions.
For the incorporation of a company, basic requirements need to be met, such as promoters, members, directors, etc. For example, for a One Person Company, only one member is required, for a Private Limited Company, a minimum of 2 members are required, for a Public Limited Company, a minimum of 7 members are required, etc.
Once the business is incorporated as a company, the business gets a separate legal entity in the eyes of the law, with the help of which the business can own property in its own name, sue in its own name, etc., and the members enjoy the limited liability facility, which means the members are protected from unlimited liability. Note: Along with the benefits of incorporating a company, there also come several responsibilities that need to be fulfilled.
Procedure for Incorporation of a Company
To register a business as a company, it is necessary to fulfill the basic requirements before its incorporation, as non-fulfillment of the requirements may lead to rejection. The basic requirements include a minimum members, the company name, obtaining a digital signature, MOA, AOA, and other important documents, etc.
Section 7 (and other) of Chapter 2 of the Companies Act, 2013 is related to the formation of the company, which describes the process of incorporation of the company such as filling the document with the company’s registrar, issuing incorporation certificate, allocation of corporate identity numbers, etc.
Following are the procedure for incorporation of a company:
1. Fulfilment of Member
The company law has prescribed the minimum and maximum number of members in a company, and to incorporate the business as a company, this requirement needs to be fulfilled. For a one person company minimum and maximum of one person is required, for a private limited company minimum of 2 and maximum of 200 members are required, and for a public limited company minimum of 7 and no maximum limit, etc. Note: Only the competent person is eligible to become a member of the company.
Types of Company | Minimum Limit | Maximum Limit |
One Person Company | 1 | 1 |
Private Limited Company | 2 | 200 |
Public Limited Company | 7 | No Limit |
2. Fulfilment of Director
A director is also required for the incorporation of a company, and the number of directors depends on the type of company. For a person company, the minimum and maximum number of directors is 1, for a private limited company, the minimum is 2 and the maximum is 15, and for a public limited company, the minimum is 3 and the maximum is 15. Note: The number of directors can be extended by passing a special resolution and the members of the company are also eligible to become directors.
Types of Company | Minimum Limit | Maximum Limit |
One Person Company | 1 | 1 |
Private Limited Company | 2 | 15 |
Public Limited Company | 3 | 15 |
3. Selection of Name
When the required number of members and directors is met, the next step is to find the name of the company and reserve that name. This is a fully online process and is performed through the RUN (Reserved Unique Name) provided by the Ministry of Corporate Affairs. For the name check and reservation, visit the MCA website. Note: Restricted names and already taken names are not allowed for reservation.
4. Obtaining Digital Signature Certificate
Company incorporation is completely through an online process, and a Digital Signature Certificate is required to submit the form and without it, the form cannot be submitted. This Digital Signature Certificate is obtained from the Certifying Authority, which is authorized by the Governing Authority to issue DSC, such as NSDL, e-mudra, V-sign, signX, pro digi sign, etc.
5. Obtaining Director Identification Number
Director Identification Number is a unique number given to those who become directors, and it is mandatory to become a director. Without it, no one can become a director, and it is obtained from the Ministry of Corporate Affairs by filling out a form along with the required documents.
6. Preparing Legal Documents
In this stage, the memorandum of association, articles of association, and other important documents, such as declaration, address proof, identity proof, etc., are prepared. These documents are mandatory to incorporate the business as a company.
7. Filling Out the Application Form
After completing all the basic documents or all the requirements, the next step is to fill out the application for incorporation of the company. Ministry of Corporate Affairs has introduced the facility to fill a new type of incorporation form, i.e., SPICe+, which has been implemented from 23 February 2020, and new businesses will fill the form for incorporation of the company through this.
8. Obtaining a Certificate of Incorporation
Once the application is successfully submitted with all the required information, the Registrar of Companies under whose jurisdiction the company falls scrutinises the application, and if all the required information is available and correct, he issues a Certificate of Incorporation with a unique Corporate Identification Number under his seal.
Advantages of Incorporation of a Company
Following are the advantages of incorporation of a company:
1. Separate Legal Entity
When a company is incorporated, it becomes a separate artificial person and is given a separate legal identity by law; thus, the incorporated company becomes a separate legal entity. After getting this title, the company and its members become two separate persons, and all the members act under the company.
2. Limited Liability
Limited liability means that the liability of the members of the company is limited and is protected from unlimited liability. This facility is provided only to a company incorporated under the Companies law. In this, the members are liable only up to the extent of their shares or guarantee. Note: There is also a company with unlimited liability.
3. Perpetual Succession
The company law provides for perpetual succession to the business, which means that the business will continue in perpetuity, even though members of the company may come and go out. In simple words, the continuity of the business is not affected by the member leaving or joining, unless otherwise mentioned in the law.
4. Transferability of Shares
Transferability of shares means transfer of shares from one person to another, but the company law restricts the free transfer of shares for certain types of companies, for example, a one-person company does not have the right to transfer shares, a private limited company can transfer shares with restrictions and in a public limited company, share transfer is freely allowed.
5. Ability to Sue
When a business is incorporated as a company, it gets a separate legal identity from the law, due to which the company is eligible to sue in its own name. For example, in a sole proprietorship, the business sues in the name of its owner, but in a company, the business sues in the name of the company.
6. Capacity of Ownership
The Company Law provides ownership capacity to a business incorporated as a company, which means that the company is eligible to own in its own name and acquire all the assets in the business under its ownership. Note: This facility is provided because of the separate legal entity.
Disadvantages of Incorporation of a Company
Following are the disadvantages of incorporation of a company:
1. Complex
Incorporating, running, and winding up a company is complex as compared to other types of businesses, as it involves fulfilling various requirements which are complex. For example, preparing various documents, maintaining books, appointing a person in various positions like auditor, director, consultant, etc., and many other tasks that are quite complex.
2. Transparency
A business incorporated as a company under the Companies Law is required to maintain transparency in its activities, especially in financial data. All companies are required to publish their financial data to the public, and the public can access the company’s financial data at any time.
3. Expensive
Incorporating and running a company is a costly affair as it requires fulfilling different requirements than other business forms, for example, following different procedures, maintaining books, publishing books, conducting audits, appointing auditors, legal advisors, directors, etc., etc. Note: The governing law determines what needs to be done and what does not.
4. Responsibility
After the incorporation of the company, the business has to fulfill various responsibilities, such as corporate social responsibility, etc., which are prescribed by the governing law. If the order is not followed, fines or other penalties may be imposed. Note: The responsibilities apply only if the business falls under the parameters prescribed by the governing law.
5. Loss of Control
The company is more systematic than other types of business forms, and all functional functions are performed by the management and not by the owner, thus the owner loses control over the functional functions. In other words, all functional functions are performed by the board of directors, and the owner only attends meetings like AGM (Annual General Meeting) and EGM (Extraordinary General Meeting).
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QNA/FAQ
Q1. What is the incorporation of the company?
Ans: Incorporation of the company means establishing a business as a company under the governing law.
Q2. In India, companies are registered under which Act?
Ans: In India, Companies are registered under the Companies Act, 2013.
Q3. Which new application form has been introduced by the Ministry of Corporate Affairs for the company’s incorporation?
Ans: A new application called SPICe+ has been introduced by the Ministry of Corporate Affairs for the company’s incorporation.
Q4. Who issues the director identity number?
Ans: The Ministry of Corporate Affairs issues the Director Identification Number.
Q5. How can the number of directors be extended more than the prescribed limit?
Ans: The number of directors can be extended by passing a special resolution more than the prescribed limit.