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Section 16: Companies Act- Incorporating companies and compliances in India

Section 16 of the Companies Act, 2013 pertains to the requirement of obtaining a certificate of incorporation for the formation of a company. The section states that a company can only be formed when it has obtained a certificate of incorporation from the Registrar of Companies (RoC) appointed under this Act.

The relevant case law related to Section 16 of the Companies Act, 2013 is:

  1. Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965): In this case, it was held that the registration of a company is a precondition for it to come into existence as a legal entity.

The relevant rule related to Section 16 of the Companies Act, 2013 is:

  1. Rule 8 of the Companies (Incorporation) Rules, 2014: This rule prescribes the procedure for obtaining a certificate of incorporation from the Registrar of Companies. It specifies the documents that need to be submitted along with the application for incorporation and the fees payable for the same.

Apart from the above-mentioned case law and rule, there are some other important aspects related to Section 16 of the Companies Act, 2013, which are as follows:

  1. Name Availability: Before applying for a certificate of incorporation, the company must ensure that the proposed name is available and not already registered with the Registrar of Companies. The name can be checked online through the Ministry of Corporate Affairs (MCA) website.

  2. Incorporation Documents: The company must prepare and file the memorandum of association (MOA) and articles of association (AOA) along with the application for incorporation. These documents contain the objectives, powers, and rules governing the company's operations.

  3. Registration Fees: The company is required to pay the prescribed fees to the Registrar of Companies for the registration of the company. The fees are based on the authorized capital of the company.

  4. Timeframe for Incorporation: The Registrar of Companies is required to issue the certificate of incorporation within 2 working days if all the documents and information submitted are complete and accurate.

  5. Alteration of Memorandum and Articles: The memorandum and articles of association of the company can be altered after incorporation, subject to compliance with the provisions of the Companies Act and the approval of the shareholders.

  6. Effect of Certificate of Incorporation: Once the certificate of incorporation is issued, the company comes into existence as a legal entity separate from its promoters and shareholders. It can enter into contracts, sue or be sued in its own name, and own assets and liabilities.

  7. Consequences of Non-Compliance: Failure to comply with the requirements of Section 16 and related rules can lead to the rejection of the application for incorporation or delay in the issuance of the certificate of incorporation. Non-compliance with the provisions of the Companies Act can also attract penalties, fines, or prosecution.

  8. Minimum Requirements for Incorporation: As per the Companies Act, a company can be formed with a minimum of two members for a private company and seven members for a public company. The memorandum of association must also have at least one subscriber.

  9. One Person Company (OPC): In addition to private and public companies, the Companies Act also allows for the incorporation of One Person Companies (OPCs). An OPC is a type of private company that can be formed with only one member. The member has limited liability and can appoint a nominee to take over the company's management in case of their death or incapacity.

  10. Conversion of Companies: The Companies Act allows for the conversion of a private company into a public company or vice versa, subject to compliance with the provisions of the Act and approval of the shareholders and other regulatory authorities.

  11. Foreign Companies: The Act also provides for the registration of foreign companies that wish to establish a presence in India. Such companies are required to comply with the provisions of the Act related to the registration and operation of foreign companies in India.

  12. E-Forms: The Companies Act, 2013 has introduced the concept of e-governance for the incorporation of companies. Various forms and documents required for incorporation can be filed online through the MCA portal.

In conclusion, Section 16 of the Companies Act, 2013 lays down the legal framework for the incorporation of companies in India. Compliance with the provisions of this section and related rules is essential for the smooth and lawful establishment of a company's legal entity. The Act also provides for various types of companies and allows for the conversion and registration of foreign companies, providing flexibility to businesses operating in India.

By Siddharth Dalmia

The StartUp Sherpa


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