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Incorporation of a Private Company


Incorporation of a Private Company

The incorporation of a Company is governed by the Companies Act 1956. The Companies Act is an Act to consolidate and amend the law relating to companies and certain other associations. It extends to the whole of India. Chapters I and II deal with the incorporation of a company and matters incidental thereto.

Private company / public company

  1. Private company means a company which has a minimum paid-up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles,

  2.  restricts the rights to transfer its shares, if any;

  1. persons who are in the employment of the company, and

  2. persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and

  1.  limits the number of its members to fifty not including-

  2. prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company ;

  3.  prohibits any invitation or acceptance of deposits from persons other than its member, directors or their relatives;

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definitions, be treated as a single member;

Public company means a company which -

  1. is not a private company;
  2. has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be prescribed;
  3. is a private company which is a subsidiary of a company which is not a private company.
  • Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less than one lakh rupees, shall, within a period of two years from such commencement, enhance its paid-capital to one lakh rupees.

  • Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less than five lakh rupees, shall, within a period of two years from such commencement, enhance its paid-capital to five lakh rupees.

  • Where a private company or a public company fails to enhance its paid-up capital in the manner specified in sub-section (3) or sub-section (4), such company shall be deemed to be a defunct company within the meaning of section 560 and its name shall be struck off from the register by the Registrar.

  • A company registered under section 25 before or after the commencement of Companies (Amendment) Act, 2000 shall not be required to have minimum paid-up capital specified in this section.

Formation of a private limited company

A private Company can be formed either by

  1.  incorporation of a new company for doing a new business , or

  2. conversion of existing business of a sole proprietary concern or partnership firm into a company.

A sole proprietary or partnership business can be converted into a company in any of the following ways:

  1. By outright sale of the business as a going concern. It may be a block sale where the following takes over all the assets and liabilities of the firm or it may be partial take over of certain assets and liabilities. The consideration may be based on itemized sale or it may be on slump sale basis.
  1. A company becoming a partner of the firm which will be dissolved thereafter by making partners of the firms the only shareholders of the newly incorporated company for which the following steps should be taken:
  1.  Form a private company as per the procedure.

  2. The proprietor of the existing business along with some other persons (generally, family members and  friends) or the partners of the existing firms, are the subscribers to the Company Memorandum of Association

  3. Make the newly formed company a partner with the sole-proprietor or the partners of the existing business. For this purpose a fresh partnership deed is to be executed.

  4. Make a provision in the new partnership deed for the transfer of all assets and liabilities of the firm to any one of the partners who will pay off to the other partners.

  5. Dissolve the partnership with the whole business going to the company as the sole continuing partner.

  6. Every other partner of the firm (or the proprietor) gets shares in the company in lieu of his interest in the firm on dissolution.



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