Updated : May 6, 2024A Glossary of Terms used in Company Incorporation
Overview :Incorporating a company in India is a mandatory requirement under Companies Act 2013. However, the process of incorporation involves several legal formalities and technicalities that are quite difficult to comprehend, for entrepreneurs who lack knowledge and experience in the field. As a result, they often make silly and common mistakes in registering their companies, which in turn lands them in a pool of hefty fines and penalties.
We are writing this article with the purpose of educating our readers about the basic terms and concepts frequently used in the procedure of company incorporation in India. Our goal is to enhance their knowledge in the field, and reduce their proneness to errors in setting up and registering their private limited companies in India.
1. DSC
DSC or Digital Signature Certificate is an encrypted and digital form of a signature that is used to sign several online forms, including the form for company registration. It can be obtained by filing an application form to the Certifying Agencies, licensed by the Ministry of Corporate Affairs, to issue DSCs.
2. DIN
Every director is allotted a unique and permanent identification number by the Ministry of Corporate Affairs, known as a Director Identification Number (DIN). No individual can be appointed as the director of a company if he does not have a company DIN. A DIN can be obtained by filing an application to the Ministry of Corporate Affairs in form DIR 3 or PART B of the SPICe+ application.
3. Company Name
The name of a company has to be unique and communicative of the brand and business activity of the company. It should not be the same, similar, or deceptively identical to the name of an already existing company, an applied, or registered trademark. The name of a private company must not contain words that show government patronage or is “undesirable” in its opinion. Other guidelines for naming a company have been mentioned in the Companies Act 2013. The proposed names for a company must be submitted to the Registrar of Central Registration Centre for final approval and reservation. For this purpose, either the RUN or PART A of the application must be submitted to the Registrar, CRC. Learn More
4. MOA
The Memorandum of Association (MOA) is one of the foundational documents of the company, which contains its basic details including name, registered office address, object, liability of owners, and capital of the company. It is drafted on a stamp paper by the director/s, and signed by all shareholders of the company in the presence of a notary. The MoA is submitted as a supporting document with the application for company registration.
5. AOA
The Articles of Association (AOA) of a company contains rules and regulations for the internal management and administration of the company. Like the MoA, the AoA is also drafted by the director/s and signed by all shareholders of the company. It is submitted to the ROC as a supporting document with the application for company registration.
6. Promoters
The group of people consisting of proposed directors and shareholders who conceive the very idea of setting up a company are known as its promoters. They make key decisions for the company at the time of its inception, including its name, object, capital etc. They are responsible for promoting and seeking investments for the company at its initial stages. However, they may or may not have a monetary interest in the company.
7. Shareholder
The ownership and management of the company are held by two separate authorities. The shareholders share ownership of the company by investing capital into it, for which they receive guaranteed returns. Their liabilities towards the company are determined by calculating the unpaid amount for the shares subscribed by them.
8. Director
The directors are appointed by the company's shareholders to manage the affairs of the company and to make day-to-day decisions regarding the operation and management of the company. Directors that actively control the management of the company are called executive directors, whereas directors who do not participate in the management of the company and instead provide specific services related to their individual professions are called non-executive directors. Additionally, they are also considered as the agent of the company and perform all duties on its behalf.
9. Board of directors
All directors of a company collectively form its board of directors. The Board is responsible for making all key decisions related to the company. This is done by convening a meeting of the Board of Directors and passing resolutions to approve certain proposed decisions. A resolution at the board meeting is considered to be passed or approved only when it receives votes by the majority of directors present and voting. Resolutions passed by the Board require approval from the shareholders of the company to become effective.
10. Authorised Capital
Authorised capital is the capital decided by its shareholders that would be required for the proper functioning of the business. It is this capital that is mentioned in the Memorandum of the company. The capital contributed by the shareholders can be equal to or less than the authorised capital but can never exceed it. It is for this reason that the authorised capital is frequently raised by a company when it plans to receive huge funds. Another significant function of the authorised capital is that the application fees for most forms related to company incorporation and compliances are based on its limits.
11. Subscribed Capital
The subscribed capital of a company is the total worth of shares that the company has sold to its shareholders. It is the capital that must be paid by the shareholders in the long term, if not immediately. The capital subscribed by each shareholder is different from the others. Moreover, it is this capital that decides the liability of each shareholder towards the company. The subscribed capital can either be equal to or less than the authorised share capital but can never exceed it.
12. Paid Up Capital
Paid-up capital is the actual amount of capital that the company presently holds. It may be less than the subscribed capital if the shareholders have not yet paid the entire amount for the shares that they have subscribed. Paid-up capital can never exceed the limits of the subscribed and authorised capitals of a company. Like the subscribed capital, the paid-up capital contribution is also different for different shareholders of a company.
13. Spice Plus Form
The Spice Plus form is the form prescribed for the incorporation of a company in India. It is divided into two parts and integrates a total of 11 services related to company incorporation from the Ministries of Finance, Labour and Corporate Affairs; These include reservation of the company’s name, application for its incorporation, DIN, PAN, TAN, PT, EPF, ESI, GST registrations and application for opening a current account for the company. It is filled out and signed by the director on behalf of the company.
14. MCA 21
The MCA 21 is the flagship programme of the Ministry of Corporate Affairs under which all services related to the incorporation of the company and its post-incorporation ROC compliances have been completely digitised to reduce the time and costs involved.
15. Certificate of Incorporation
Issuance of the Certificate of Incorporation is conclusive proof that the ROC has successfully incorporated a company. The document is issued to the company by the ROC immediately after its incorporation.
16. CIN
Corporate Identification Number or CIN is a unique identification number allotted to the company by the ROC immediately after its incorporation. CIN acts as the identity of the company for all practical purposes like ROC filings, tax and legal compliances.
17. Company PAN
PAN or Permanent Account Number of a company is a unique number allotted to it by the Ministry of Finance immediately after its incorporation. The number is printed on its Certificate of Incorporation, and an e-PAN card is issued to the company along with the Certificate of Incorporation. PAN is a mandatory document that all companies must possess to ensure that they are income-tax compliant.
18. Company TAN
TAN or Tax Account Number of a company is issued to it by the Ministry of Finance as an entitlement to deduct or collect tax at source and file the prescribed TDS, and TCS returns to the Income-tax Department on respective due dates. Like PAN, the TAN is also allotted to the company immediately after its incorporation.
19. Company bank account
A company exists as a legal and financial entity distinct from its owners. While it gains its legal identity after its incorporation, its financial identity is established when a separate account in the name of the company is opened to carry out all transactions related to its business. The bank account of a company is always current in nature. An application to open a bank account is linked with the application for company registration itself, which enables the company to open its bank account at the time of its incorporation only.
20. AGILE PRO
AGILE PRO or INC 35 is a form linked to the SPICe+ application that integrates services related to post-incorporation compliances of a company. These include the applications for EPF Registration, ESI Registration, Professional Tax Registration, GST Registration, and opening a current bank account for the company. The application is filed with the required supporting documents. The application fee is inclusive of the fee for the SPICe+ application, and no additional fee is required.
21. Director’s Declaration
The first directors of a company, or in their absence, the current directors of a company are required to file a declaration in the INC 9 form and submit it along with the SPICe+ application for company incorporation. The directors are required to declare that they have never been a legal offender, a fraud, an insolvent, or guilty of breach of duty and that the application that is being filed for the incorporation of the company contains all authentic details and documents. Company incorporation is not possible without such declarations furnished by the directors.
22. Employee Provident Fund
The employee Provident Fund is a statutory social security benefit offered by the company to its employees. Both the employer and the employee are required to contribute equal amounts (12% of the basic salary) to the fund. For this purpose, the amount to be contributed is deducted from the salary of the employee and income of the business respectively. A company is eligible to contribute to the PF of its employees only if their total number exceeds 20. Employees, however, have the option to opt for PF deduction if they earn more than Rs.15,000 monthly. Below the income of Rs. 15,000, contribution to the PF becomes mandatory for employers as well as the employees.. In order to contribute to the PF of its employees, a company must apply for EPF registration and obtain an EPF Certificate from the Labour Ministry. For this purpose, an application along with the required supporting documents can be filed in the AGILE PRO form which is linked with SPICe+, the form for company registration.
23. Employee State Insurance
Like EPF, ESI or Employee State Insurance Scheme is also a mandatory statutory social security benefit offered by the employer to its employees. Companies that have more than 10 employees are eligible to contribute to their ESI. Besides, ESI contribution is mandatory for employees who earn less than Rs.21,000 monthly, beyond which ESI contribution becomes optional for the employee as well as the employer. In order to contribute to the ESI of its employees, a company must apply for ESI registration and obtain an ESI Certificate from the Labour Ministry. For this purpose, an application along with the required supporting documents can be filed in the AGILE PRO form which is linked with SPICe+, the form for company registration.
24. Professional Tax
Professional tax is a mandatory tax required to be paid by professionals only. The applicability and the rates of professional tax are different for different states in India. However, in the states where the tax is applicable, its payment becomes mandatory for eligible taxpayers. In a company, professional tax is paid by the employees, directors, and the company itself. In order to pay the Professional tax, companies must apply for Professional tax registration with the Ministry of Labour. For this purpose, an application along with the required supporting documents can be filed in the AGILE PRO form which is linked with SPICe+, the form for company registration.
25. Annual returns
Annual returns is one the most significant annual compliances for a company whereby it has to submit its basic details to the ROC every financial year in the prescribed form and on the prescribed due date. Any changes made in the basic information of the company must be updated in its annual returns. Failure to file the annual returns on or before the due date results in the imposition of hefty late fees and penalties for the company.
