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Company Formation in India

Introduction​

Company formation (incorporation) is the legal process by which a group of persons associate to create a company as a distinct legal entity, separate from its members. In India, incorporation is governed principally by the Companies Act, 2013, administered by the Ministry of Corporate Affairs (MCA) through the Registrar of Companies (RoC). Once incorporated, the company acquires perpetual succession, the capacity to sue and be sued in its own name, and limited liability for its members (in the case of companies limited by shares or by guarantee).

This chapter explains the legal framework, the types of companies that may be formed, the documents required, the step-by-step procedure under the current SPICe+ regime, and the leading judicial principles that underpin incorporation.

The Companies Act, 2013 is the primary legislation. The provisions most relevant to formation are:

  • Section 3 – Formation of company. Prescribes the minimum number of persons required to form a company: seven or more for a public company, two or more for a private company, and one person for a One Person Company (OPC).
  • Section 4 – Memorandum of Association (MoA). Sets out the contents of the memorandum, including the name clause, registered office (State) clause, objects clause, liability clause and capital clause.
  • Section 5 – Articles of Association (AoA). Governs the regulations for internal management of the company.
  • Section 7 – Incorporation of company. Lays down the procedure for registration, the documents to be filed with the Registrar, and the effect of registration, culminating in the issue of the Certificate of Incorporation.
  • Section 8 – Companies with charitable objects (not-for-profit companies). Governs the formation of companies established to promote commerce, art, science, sport, education, research, social welfare, religion, charity or protection of the environment, which apply their profits to their objects and prohibit the payment of dividends to members.
  • Section 12 – Registered office of company. Requires every company to have a registered office capable of receiving communications within a specified period after incorporation, and regulates display of the company's name and change of registered office.
  • Section 2(20) – defines "company".
  • Section 2(68) – defines a "private company".
  • Section 2(71) – defines a "public company".
  • Section 2(62) – defines a "One Person Company".

Limited Liability Partnership Act, 2008​

Where promoters prefer the flexibility of a partnership with limited liability, an LLP may be formed instead of a company. The Limited Liability Partnership Act, 2008 provides for the definition, incorporation and registration of LLPs. LLPs are registered on the MCA portal using the FiLLiP (Form for incorporation of Limited Liability Partnership).

Types of Companies That May Be Formed​

  • Private company – restricts the right to transfer shares, limits members (currently up to 200, excluding certain employee-members) and prohibits any invitation to the public to subscribe for securities.
  • Public company – not a private company; may raise capital from the public subject to the Act and SEBI regulations.
  • One Person Company (OPC) – a private company with a single member; the sole member must nominate another person to become member on the member's death or incapacity.
  • Section 8 company – a not-for-profit company licensed by the Central Government (through the RoC) that applies its income towards its objects and may omit the words "Limited" or "Private Limited" from its name.

Companies may also be classified by liability as limited by shares, limited by guarantee, or unlimited.

Documents and Pre-requisites for Incorporation​

  1. Memorandum of Association (MoA) – the company's charter defining its objects and powers (Section 4). Filed electronically as e-MoA (Form INC-33).
  2. Articles of Association (AoA) – the internal rulebook for management (Section 5). Filed electronically as e-AoA (Form INC-34). Companies may adopt the model articles in Schedule I.
  3. Digital Signature Certificate (DSC) – required for the proposed directors and subscribers to sign forms electronically.
  4. Director Identification Number (DIN) – a unique identifier for every director. An application for DIN is made under Section 153, and allotment is dealt with under Section 154. For new companies, DIN can now be applied for directly within the SPICe+ form (up to three directors).
  5. Proof of registered office – utility bill, rent/lease agreement and a No-Objection Certificate from the owner, supporting the registered office particulars under Section 12.
  6. Identity and address proof of subscribers and directors.

Process of Company Formation (SPICe+ Regime)​

Since 2020, incorporation is done through the integrated web-based form SPICe+ (INC-32) on the MCA portal, which combines several services into a single application. The typical steps are:

  1. Reserve the company name – Use the Part A of SPICe+ (formerly the RUN service) to check availability on the MCA portal and reserve a unique name that is not identical to or too closely resembling an existing company or a registered trade mark. The name must comply with the Act and the Companies (Incorporation) Rules.

  2. Obtain Digital Signature Certificates (DSC) – For proposed directors and subscribers, so that the incorporation forms can be digitally signed. DSCs are issued under the framework of the Information Technology Act, 2000.

  3. Complete Part B of SPICe+ – A single application that provides for:

    • Allotment of DIN for the proposed directors (under Sections 153–154);
    • Incorporation of the company;
    • Mandatory issue of PAN and TAN;
    • Filing of e-MoA (INC-33) and e-AoA (INC-34).

  4. File the linked forms – SPICe+ is filed together with:

    • AGILE-PRO (INC-35) for GSTIN (optional), EPFO, ESIC, professional tax (where applicable) and a bank account;
    • INC-9, the declaration by subscribers and first directors.

  5. Pay fees and stamp duty – Prescribed fees are payable as per the Companies (Registration Offices and Fees) Rules, along with applicable stamp duty on the MoA, AoA and the incorporation form.

  6. Obtain the Certificate of Incorporation – On being satisfied that the requirements of Section 7 are met, the Registrar registers the documents and issues the Certificate of Incorporation, which also carries the company's Corporate Identity Number (CIN). From the date of incorporation the company becomes a body corporate.

  7. Declaration of commencement of business – A company having a share capital must file a declaration (in Form INC-20A) confirming that every subscriber has paid the value of the shares agreed to be taken, before commencing business or exercising borrowing powers, in accordance with Section 10A.

Leading Case Law​

  • Salomon v. A. Salomon & Co. Ltd. [1897] AC 22 (House of Lords) – The foundational authority establishing that, on incorporation, a company is a separate legal person distinct from its shareholders. Salomon's company was held to be validly formed even though he owned the vast majority of shares, and its debts were the company's, not his. This principle of separate legal personality is the cornerstone of company formation and is followed in Indian company law.

  • Lee v. Lee's Air Farming Ltd. [1961] AC 12 (Privy Council) – Confirmed that a person can simultaneously be the controlling shareholder, sole director and an employee of the same company, reinforcing the separate-personality principle recognised in Salomon.

These landmark decisions illustrate why the moment of incorporation is legally significant: it creates a new legal entity capable of holding property, contracting, and bearing liability in its own name.

Worked Example​

Suppose two friends, A and B, wish to start a technology business with limited liability and without inviting public investment. They would:

  1. Reserve a name (e.g., "AB Tech Solutions Private Limited") through Part A of SPICe+.
  2. Obtain DSCs for both, as they will be the first directors and subscribers.
  3. Prepare the e-MoA stating their objects (software development) and the e-AoA adopting suitable model articles.
  4. File SPICe+ Part B with DIN applications, PAN/TAN, and the linked INC-9 declaration and AGILE-PRO form.
  5. On approval, receive the Certificate of Incorporation with a CIN, then file INC-20A after paying up their subscribed capital.

The result is a private company limited by shares (Section 2(68)) that is a separate legal person from A and B.

Exam Pointers​

  • Distinguish clearly between Section 3 (who may form a company / minimum members), Section 7 (procedure and effect of incorporation) and Section 8 (not-for-profit companies). A common error is to confuse these sections.
  • Remember that DIN is applied for under Sections 153–154, not any repealed provision of the old Act.
  • Be able to explain the doctrine of separate legal personality using Salomon v. Salomon and Lee v. Lee's Air Farming.
  • Know the modern SPICe+ procedure; the older INC-7/INC-22 route has been replaced by the integrated form.
  • Note the requirement of a declaration of commencement of business (Section 10A / Form INC-20A) for companies with share capital.

Conclusion​

Company formation in India is now a largely digital, integrated process centred on the SPICe+ form, but it rests on long-standing legal principles. Understanding the relevant provisions of the Companies Act, 2013 — particularly Sections 3, 4, 5, 7 and 8 — together with the doctrine of separate legal personality, allows entrepreneurs and students alike to appreciate both the procedure and its legal consequences.

Additional Resources​

  • Ministry of Corporate Affairs (MCA portal): https://www.mca.gov.in/
  • The Companies Act, 2013 and the Companies (Incorporation) Rules, 2014.