Incorporation under Companies Act 2013 – Road towards simplification

Introduction

Doing business in India has entered an exciting phase owing to the launch of start-ups providing niche services as per their sectoral expertise. In order to encourage the growth of start-ups in the country, the Government has from time to time attempted to simplify the incorporation process and promote ease of doing business in India. A key initiative to meet this end has been the launch of the SPICe E-Form (“SPICe”) for incorporating a company under the Companies Act, 2013.[1]

Simplification of Incorporation Process through SPICe Form

SPICe stands for Simplified Proforma for Incorporating Company Electronically.[2] Persons intending to undergo incorporation process may do so by filing an integrated digital form SPICe (E-Form INC-32) (“SPICe Form”) along with supporting documents. The sole purpose of the SPICe Form is to ensure a one stop mechanism for incorporation, name approval, allotment of director identification number, payment of stamp duty and registration fees, and availing ancillary registration such as employer registration with the employees’ state insurance corporation. The SPICe Form is filed along with other incorporation documents such as the memorandum of association and the articles of association of the company in pre-drafted e-forms that are linked to the SPICe Form.

Incorporation – Recent Amendments

A recent amendment to the incorporation rules[3] has further paved the way for efficient doing of business.

1. Commencement of business: By virtue of the amendment[4], declaration related to commencement of business shall be filed by the director of the company in Form No. INC – 20A with the registrar, within 180 days from the date of incorporation. The contents of the said Form shall be verified by a practising Company Secretary or a Chartered Accountant or a Cost Accountant. The declaration needs to be submitted before commencing any business activity or exercising borrowing powers. Further in the event, a company pursuing objects requiring registration or approval from RBI, SEBI, etc., then the registration or approval from RBI, SEBI, etc. shall also be obtained and attached with the declaration.
2. Sorting of ‘Active’ Companies: Further, companies that have been incorporated and registered under the Act on or before 31st December 2017[5] are required to file its particulars along with its registered office in e-Form ACTIVE (Active Companies Tagging Identities and Verification) on or before 25th April 2019. Any company fulfilling the aforesaid criteria but failing to file e-Form ACTIVE will be liable to be struck off under the Act and will be marked as ACTIVE-non-compliant on or after 26th April 2019.
3. Shifting of registered office: The procedural compliance for shifting of registered office of a company has been made flexible by permitting companies to advertise in an English newspaper of popular circulation as opposed to the previous requirement of a newspaper of widest circulation. Further, companies incorporated with a nominal capital of less than or equal Rs.15,00,000/- are now exempted from paying fees for incorporation with effect from 18th March 2019. Earlier, this exemption was granted to companies having nominal capital of less than or equal to Rs.10,00,000/-.

Conclusion

The Companies Act, 2013 has thus, facilitated a ‘single window clearance’ for commencement of all start-up businesses. However, the Act has also put into motion a vigilance mechanism by which directors of a company are bound to justify that the company is not just a shell organisation but has actually commenced operations by engaging in business.

Charulata (Associate) and Sanjana Buch (Associate)

[1] Read with the Companies (Incorporation) Rules, 2014

[2] Rule 38 of the Companies (Incorporation) Rules, 2014 inserted by Notification Companies (Incorporation) Fourth Amendment Rules, 2016 dated 1st October 2016

[3] Rule 30 and 38 of the Companies (Incorporation) Rules, 2014 inserted by Notification Companies (Incorporation) Second Amendment Rules, 2019

[4] Rule 23A of the Companies (Incorporation) Rules, 2014 inserted by Notification Companies (Incorporation) Fourth Amendment Rules, 2018

[5] Rule 25A of the Companies (Incorporation) Rules 2014 inserted by Notification Companies (Incorporation) Amendment Rules, 2019