Birth Certificate: Incorporation and the First Hundred and Eighty Days

Choosing a Vehicle

Two laptops and a printed spreadsheet arrived at my office on a wet Thursday in July 2024, carried by two founders who had resigned from the same Hinjewadi services firm on the same Friday. They were building appointment software for diagnostic laboratories, and they had already rented a desk in a co-working floor on Baner Road at ₹9,500 a month. They had not yet decided what, in law, they were.

The spreadsheet had three columns: private limited company, one person company and limited liability partnership. Someone on a founders' forum had filled in the rows for them with cost estimates. Most of those estimates were wrong in a way that matters. They counted the fees of incorporation and left out the obligations that follow it, which is rather like costing a wedding by the price of the invitations.

'We just want the cheapest one that looks serious,' the younger founder said.

There is no such thing in the abstract. Each vehicle is a set of promises made to strangers, and the right choice depends on which strangers the founders expect to meet.

The one person company

The one person company, defined in Section 2(62) of the Companies Act, 2013, allows a single natural person to hold all the shares and enjoy limited liability. It was introduced to coax sole proprietors into corporate form. Rule 3 of the Companies (Incorporation) Rules, 2014 requires the member to be an Indian citizen, and since the amendment of 1 April 2021 a non-resident Indian may also form one, provided the member has stayed in India for at least 120 days in the preceding financial year. A nominee must be named at incorporation, someone who will step in as member if the founder dies or becomes incapacitated. One individual may be a member of only one such company.

For my two founders the question settled itself. An OPC has one member. They were two people with equal claims, and neither intended to be the other's nominee.

The limited liability partnership

The LLP is governed by a separate statute, the Limited Liability Partnership Act, 2008, and it is lighter in several respects. It needs at least two designated partners, one of them resident in India. It holds no board meetings and no annual general meeting, and under Rule 24 of the LLP Rules, 2009 its accounts need audit only if turnover exceeds ₹40 lakh or contribution exceeds ₹25 lakh. Its annual filings are two forms: Form 11, the annual return, due by 30 May, and Form 8, the statement of account and solvency, due by 30 October.

The drawback is structural. An LLP has no shares. It cannot issue employee stock options, and a venture fund that wants a preference share with a liquidation right has nothing to buy. Foreign investment into an LLP is permitted only in sectors that allow it at one hundred per cent under the automatic route with no performance conditions attached, and many investors will simply ask the founders to convert before they invest. I have handled that conversion under Section 366 of the 2013 Act. It is possible. It is also a second incorporation, paid for twice.

The private limited company

A private company under Section 2(68) restricts the transfer of its shares, caps its membership at two hundred and may not invite the public to subscribe to its securities. Section 3(1)(b) requires at least two members, Section 149(1)(a) at least two directors, and Section 149(3) that one director has stayed in India for 182 days or more in the previous calendar year. There has been no minimum paid-up capital since the Companies (Amendment) Act, 2015.

What the private company commits you to is the subject of the rest of this book: an auditor from the first month, four board meetings a year, an AGM, annual filings with the Registrar and directors who answer personally when those filings stop. The Act requires all of this whatever the turnover. My advice to founders who expect to raise equity within two years is to accept the weight now, because the alternative is to accept it later, with a deadline set by an investor's term sheet.

The elder founder ran his pen down the third column and crossed out two rows.

'Fine. Private limited. What do we call it?'

They had a name. They had registered the domain in March. They had not yet checked whether the Registrar would allow them to use it.

SPICe+ in Practice

The name they had registered as a domain was a coined word, which helped. Rule 8 of the Companies (Incorporation) Rules, 2014 forbids a name identical with, or too nearly resembling, an existing company or LLP. The rule disregards plural forms, punctuation, spacing, the words 'private' and 'limited', and the substitution of one letter that sounds like another. Rule 8A lists words that need a regulator's letter before they can be used at all, among them 'bank', 'insurance' and 'stock exchange'. Section 4(2) adds a broader bar on names that are undesirable or that suggest a connection with the government. A founder who types a name into the MCA's search box and finds no match has learned very little. The search does not show registered trademarks, and the Registrar does check them.

Name reservation now happens inside the incorporation form itself. SPICe+, the Simplified Proforma for Incorporating Company Electronically Plus, has two parts. Part A proposes up to two names. Once approved, a name is held for twenty days, within which Part B must be filed. Founders can also skip Part A and propose a single name directly in Part B, which saves a step and risks the whole application on one word.

Part B does a great deal at once. A single submission allots director identification numbers to up to three proposed directors who do not have one, and it incorporates the company. It also obtains PAN and TAN from the Income Tax Department, registers the company with the EPFO and ESIC, and in Maharashtra registers it for professional tax. Linked to it are the electronic memorandum (INC-33), the electronic articles (INC-34), and AGILE-PRO-S (INC-35). That last form carries the applications for GSTIN, which is optional, and for a bank account, which is not. Each subscriber and director signs a declaration in INC-9 as well. Under Section 7(1)(c) of the Companies Act, 2013, each first director also declares that he or she is not disqualified. A company with authorised capital up to ₹15 lakh pays no MCA filing fee for SPICe+, though Maharashtra stamp duty on the memorandum and articles is still collected through the portal.

The integration is real, and it is a genuine improvement on what I filed in 2002. There were separate forms then, physical stamps, and a trip to the Registrar's office at Akurdi with a folder that had to be tied with string. But integration also means one mismatch can stall six registrations together.

The errors that send a SPICe+ form back are rarely errors of law. When I have been asked to rescue someone else's application, the recurring causes have been these. The director's name was spelled one way on the PAN card and another on Aadhaar, often a dropped middle name or a father's name entered in full on one and as an initial on the other. The utility bill offered as proof of registered office was more than two months old. The no-objection letter from the owner of the premises was unsigned, or signed by a tenant with no right to give it. The digital signature certificate belonged to the right person but had expired between drafting and filing. The objects clause read like a brochure. The Registrar returns such a form marked for resubmission, with a remark that is usually accurate and occasionally oracular. One I received in 2023 said, in full, 'Please clarify the main objects.' The objects were three lines long and concerned the manufacture of corrugated boxes.

My Baner founders had one problem of the ordinary kind. The elder founder's PAN, issued when he was nineteen, gave his surname with a single 'a' that his passport and Aadhaar both doubled. The portal pre-fills from the PAN database and validates against it, so the form would not proceed. He could have corrected the PAN through the NSDL process, which takes some weeks. Or he could carry the old spelling into the company's records and live with it on every bank form for the next decade.

He chose the correction. The application went in on 9 August 2024, and on the second working day after it came back with a single remark from the Central Registration Centre about the co-working agreement on Baner Road. Clause 14 of that agreement prohibited 'use of the premises as the registered office of any entity'.

'But they advertise it,' the younger founder said. 'It is on their website. Registered office address available.'

It was, at ₹2,000 a month extra, under a different agreement.

The Clock Starts

They signed the second agreement, paid the ₹2,000, and resubmitted with the new no-objection letter on 14 August. The certificate of incorporation was issued on 21 August 2024. It carried a corporate identity number twenty-one characters long, the PAN and TAN printed beneath it, and a date that mattered more than anything else on the page. From that date several statutory periods begin to run at once, and none of them waits for the founders to notice.

The first is the auditor. Section 139(6) of the Companies Act, 2013 requires the board to appoint the company's first auditor within thirty days of incorporation. If the board fails to do so, it must inform the members, who then have ninety days to appoint one at an extraordinary general meeting. The first auditor holds office until the conclusion of the first annual general meeting. Before appointment, the auditor must give written consent and a certificate that he or she is eligible under Section 141, which excludes, among others, a relative of a director and anyone indebted to the company beyond a modest limit. The younger founder's cousin was a chartered accountant in Aundh. He was also, it emerged, the younger founder's brother-in-law. That ended the conversation.

Whether Form ADT-1 must be filed for a first auditor is a point on which practitioners differ, because Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014 speaks of intimation after appointment at a general meeting, and a first auditor is appointed by the board. The Act does not settle it in plain words. I file ADT-1 anyway. It costs a small fee, and a future investor's lawyer will look for it.

The second period also runs for thirty days. Section 173(1) requires the first board meeting to be held within thirty days of incorporation. In this company's case that meant by 20 September 2024. The first meeting does unglamorous work. It takes note of the certificate and the constitutional documents, appoints the auditor, and authorises the opening of a bank account. It also receives each director's disclosure of interest in Form MBP-1, which Section 184(1) requires at the first meeting a director attends, and the declaration of non-disqualification in DIR-8. The minutes of that meeting are the company's first entry in its own memory. I drafted them on 3 September, and the founders signed in the co-working space's meeting room, which they had booked for an hour and used for twenty minutes.

'That's it?' the elder founder asked.

'That's the first one. There are three more this financial year.'

The third period is the longest and the one most often forgotten. Section 10A, inserted by the Companies (Amendment) Act, 2019, provides that a company incorporated after November 2018 with share capital may not commence business, or exercise any borrowing powers, until a director has filed a declaration in Form INC-20A within 180 days of incorporation. The declaration confirms that every subscriber to the memorandum has paid the value of the shares he or she agreed to take, and it must attach proof of that payment. For my founders, by my count, the deadline fell on 17 February 2025.

The consequences of missing it are set out in the section itself. The company is liable to a penalty of ₹50,000, and every officer in default to ₹1,000 for each day of default, up to ₹1 lakh. More seriously, Section 10A(2) allows the Registrar, if he has reasonable cause to believe the company is not carrying on business, to begin proceedings to strike it off under Section 248. That is the same mechanism that removed about 2.26 lakh companies in 2017. A company that signs a client contract and raises an invoice before filing INC-20A has, strictly, commenced business in breach of the Act. I have seen a start-up discover this during due diligence, when the investor's counsel set the INC-20A date beside the date of the first invoice and asked for an explanation in writing.

Subscription money, under Section 56(4)(a), must also be matched by share certificates issued within two months of incorporation. The founders had subscribed for 5,000 shares each at ₹10, a total of ₹1,00,000. The proof that INC-20A requires is a bank statement showing that money arriving in the company's own account.

On 3 September 2024, the company had a board, an auditor, a PAN and a TAN. It did not yet have a bank account.

A Home the Law Can Find

The bank was a private lender on Baner–Pashan Link Road, chosen because its branch was a ten-minute walk from the co-working space. Its current-account checklist ran to two pages. It wanted the certificate of incorporation, the memorandum and articles, the company's PAN, the board resolution authorising the account, the KYC of each director, and proof of the registered office. The relationship manager read the no-objection letter twice and then telephoned the co-working operator to confirm that the company really sat on the third floor. It did, in the sense the law means, which is not the sense the founders meant. They sat wherever there was a free desk.

Section 12(1) of the Companies Act, 2013 requires every company to have, within thirty days of incorporation and at all times after, a registered office capable of receiving and acknowledging all communications addressed to it. In practice, for companies incorporated through SPICe+, the address is verified at incorporation and Form INC-22 is needed only when the office moves. The office is not a formality. Since the 2019 amendment, Section 12(9) allows the Registrar to physically verify it, and Rule 25B of the Companies (Incorporation) Rules, 2014 requires that verification to be done in the presence of two independent witnesses. If the company is not found there, the Registrar may begin proceedings to remove its name under Section 248. I have known an inspector to arrive at a residential flat in Pimple Saudagar and be told by a maid that 'company people are not here, only Aunty.'

The office has outward duties too. Section 12(3) requires the company's name to be painted or affixed outside every office in legible letters, and its name, registered address and corporate identity number to appear on its letterheads, invoices and official publications. The co-working operator supplied a small acrylic plate for the lobby board. The founders received their account opening kit on 11 September 2024. Each paid ₹50,000 into the company's account the next morning.

The registered office is also where the company keeps its memory in the formal sense. Section 88 requires a register of members in Form MGT-1. Section 170 requires a register of directors and key managerial personnel, Section 189 a register of contracts in which directors are interested in Form MBP-4, Section 186 a register of loans, guarantees and investments in Form MBP-2, and Section 85 a register of charges in Form CHG-7, even when the company has never borrowed a rupee. Under Section 94 these registers are kept at the registered office unless the members resolve otherwise. They may be maintained electronically. They may not be left blank.

The elder founder asked why a company with two shareholders, both sitting at the same table, needed a register to tell it who owned it. The answer is that the register is not written for them. It is written for the investor, the bank and the tax officer who will arrive later and who have no way of knowing what the founders agreed over coffee. Folio 1 in their register of members records 5,000 equity shares of ₹10 each, fully paid, allotted to the elder founder. Folio 2 records the same for the younger. Share certificates in Form SH-1 were issued on 15 October 2024, five days inside the two-month limit, and INC-20A, with the bank statement attached, went in on 4 October.

Calendar. For a company incorporated on 21 August 2024 the first deadlines run as follows: the first auditor and the first board meeting by 20 September 2024; share certificates by 20 October 2024; the Section 10A declaration in INC-20A by 17 February 2025; three further board meetings before 31 March 2025, with no gap longer than 120 days; and, because the first financial year closes on 31 March 2025, the first annual general meeting under Section 96(1) by 31 December 2025.

That last date is nine months beyond the end of a year that had barely begun. The founders wrote it on the meeting-room whiteboard in green marker. Somebody else erased it the following week.

The acrylic plate is still in the lobby, fourth row from the top, between a drone-survey firm and a company that sells organic jaggery. It reads, in full, the name, the words 'Private Limited', and a corporate identity number no visitor has ever stopped to read.