Process to Incorporate a Company in India

When establishing a company in India, it’s essential to understand the distinction between company formation and company incorporation.

Company formation refers to the overall process of legally establishing a business. 

It applies to various business structures, including sole proprietorships, partnership firms, Limited Liability Partnerships (LLPs), One Person Companies (OPCs), private limited companies, and public limited companies.

Company incorporation, on the other hand, is a specific step within the formation process.

It applies only to incorporated entities, such as private limited companies (Pvt. Ltd.), public limited companies (Ltd.), and LLPs. Incorporation grants the business a separate legal identity, meaning it exists independently from its owners in terms of liabilities, rights, and obligations.

Why is incorporation important?

Incorporating your business means legally registering it as a separate entity with the Ministry of Corporate Affairs (MCA)/Registrar of Companies (RoC) under the Companies Act, 2013. 

This process provides the company with its own legal identity, allowing it to own assets, incur liabilities, enter contracts, and operate independently from its owners.

Here’s why it matters:

1. Limited liability protection

If your business faces financial difficulties or legal disputes, your personal assets (such as your home, savings, or personal investments) remain protected. Your liability is limited to your investment in the company, meaning creditors cannot claim your personal wealth to settle business debts.

2. Increased credibility and business trust

Customers, investors, and partners prefer working with incorporated businesses as they signal professionalism, financial stability, and long-term commitment. 

3. Easier access to funding

Banks, venture capitalists, and government grant providers prefer to fund incorporated businesses.

Incorporation makes it easier to:

• Secure business loans from banks
• Raise investments from angel investors and venture capitalists
• Access government schemes such as the Startup India program

4. Business continuity and scalability

Unlike sole proprietorships, incorporated businesses (such as private limited companies, public limited companies, and LLPs) have a separate legal existence, meaning they can continue operating even if the owner leaves, retires, or passes away. In contrast, a sole proprietorship ceases to exist upon the proprietor’s death, unless transferred to a legal heir or restructured into a different business entity.

5. Tax benefits and financial efficiency

Incorporation can provide tax advantages, such as:

• Deducting business expenses (rent, salaries, and operational costs)
• Lower corporate tax rates compared to individual tax rates
• Eligibility for government tax benefits under Startup India and MSME schemes

Differences between incorporation and formation

Formalities for company formation & company incorporation

Company incorporation and company formation in India involve several legal and operational steps to ensure compliance with regulatory requirements. Here's a comparison of the formalities involved:

Types of business structures in India

When starting a business in India, choosing the right business structure is crucial, as it determines ownership, compliance requirements, taxation, and liability. 

Below are the main types of business structures:

1. Sole proprietorship

A sole proprietorship is the simplest form of business, owned and managed by a single individual. It is not a separate legal entity, meaning the owner is personally liable for all debts and obligations.

Key features:

• No formal registration required (except for GST, trade licenses, etc.).
• The owner and business are the same entity (unlimited liability).
• Profits taxed as individual income.
• Suitable for small businesses, freelancers, and local traders.

2. Partnership firm

A partnership firm is owned and managed by two or more individuals who share profits and liabilities as per a partnership deed. It is governed by the Indian Partnership Act, 1932 and can be either registered or unregistered.

Key features:

• Easy to set up with a partnership deed.
• Partners have unlimited liability (except in LLPs).
• Taxed as individual income under partnership taxation rules.
• Suitable for small and medium businesses with shared ownership.

3. Limited Liability Partnership (LLP) – Incorporated

An LLP combines elements of a partnership and a private limited company, offering limited liability to partners while allowing operational flexibility. It is governed by the Limited Liability Partnership Act, 2008.

Key features:

• Requires registration with the Ministry of Corporate Affairs (MCA).
• Separate legal entity with limited liability for partners.
• No minimum capital requirement.
• Compliance requirements lower than a private limited company.
• Suitable for professional firms, consultants, and medium-scale businesses.

4. One Person Company (OPC) – Incorporated

An OPC is a hybrid structure that allows a single entrepreneur to operate a business as a separate legal entity while enjoying limited liability. It is governed by the Companies Act, 2013.

Key features:

• Requires MCA registration and a nominee director.
• Limited liability protection for the owner.
• Taxed as a private limited company (not individual tax rates).
• Suitable for solo entrepreneurs who want corporate benefits.

5. Private Limited Company (Pvt. Ltd.) – Incorporated

A private limited company is a separate legal entity registered under the Companies Act, 2013, offering limited liability and the ability to raise capital through shares (though not publicly traded).

Key features:

• Minimum 2 shareholders and 2 directors (can be the same individuals).
• Limited liability protection for shareholders.
• Can raise funds from investors, venture capitalists, or banks.
• Requires annual compliance (filings with MCA, audits, etc.).
• Suitable for startups, growing businesses, and tech firms.

6. Public Limited Company (Ltd.) – Incorporated

A public limited company can raise capital from the public in general.

Key features:

• Minimum 3 directors and 7 shareholders.
• Strict governance, audits, and disclosure requirements.
• Suitable for large businesses planning to go public.

7. Section 8 company (Non-Profit Organization) – Incorporated

A Section 8 Company is a non-profit organization (NPO) formed for charitable, social, or environmental purposes under the Companies Act, 2013.

Key features:

• Must use profits for charitable purposes (no dividend distribution).
• Requires MCA approval and registration.
• Eligible for tax exemptions under Income Tax Act.
• Suitable for NGOs, charitable institutions, and social enterprises.

Steps for company incorporation in India

Once the formation process is complete, the company can be legally incorporated by following these steps:

1. Filing the SPICe+ form (INC-32) for incorporation

The SPICe+ (Simplified Proforma for Incorporating a Company Electronically) form is a single-window application that covers:

• Name approval
• DIN allotment
• PAN & TAN registration
• GST registration (if applicable)
• Professional Tax and EPFO/ESIC registration (if applicable)

2. Drafting and filing key documents

• Memorandum of Association (MoA): Defines the company’s objectives and scope of operations.
• Articles of Association (AoA): Governs the company’s internal management and shareholder rights.
• Declaration & Affidavits (INC-9): Confirmation from directors and shareholders that they comply with the Companies Act.

3. Payment of fees & stamp duty

Fees vary based on company type and authorized capital. Stamp duty is state-specific

4. Receiving the Certificate of Incorporation (CoI)

Once approved, the MCA issues a Certificate of Incorporation (CoI) containing the Corporate Identity Number (CIN), confirming the company’s legal existence.

Post-incorporation compliance requirements

After incorporation, the company must complete additional compliance steps:

1. Apply for PAN & TAN

A newly incorporated company must obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN), both of which are essential for tax-related transactions. 

Under the SPICe+ (Simplified Proforma for Incorporating a Company Electronically) form, issued by the Ministry of Corporate Affairs (MCA), PAN and TAN are automatically generated at the time of incorporation, eliminating the need for a separate application.

2. Open a company bank account

A dedicated company bank account is mandatory for conducting financial transactions in the company’s name. To open an account, the company must submit key documents to the bank, including the Certificate of Incorporation (CoI), PAN, Memorandum of Association (MoA), and Articles of Association (AoA). This account is essential for receiving payments, paying vendors, and maintaining financial records.

3. Register for Goods and Services Tax (GST)

If a company's annual turnover exceeds ₹40 lakh (₹20 lakh for service providers), it must register under the Goods and Services Tax (GST) Act. GST registration is necessary for issuing tax invoices, collecting GST from customers, and claiming input tax credit (ITC) on business expenses. Certain businesses, such as those engaged in interstate trade or e-commerce, require GST registration regardless of turnover.

4. Compliance with labor laws & other registrations

Companies employing 10 or more workers must register for the Employees' Provident Fund (EPFO) and Employees’ State Insurance (ESI) to ensure social security and healthcare benefits for employees. Additionally, companies operating in states where Professional Tax is applicable (e.g., Maharashtra, Karnataka, Tamil Nadu) must obtain Professional Tax Registration as per local regulations.

5. Filing annual compliance reports

All incorporated companies must file annual reports with the Registrar of Companies (ROC) to maintain legal compliance. This includes filing MGT-7 (Annual Return), which provides details on shareholders, directors, and corporate structure, and AOC-4 (financial statements), which includes the company’s balance sheet and profit & loss account. Directors must also complete DIR-3 KYC annually to verify their identity with the MCA. Non-compliance can result in penalties and legal consequences.