You name it: book a name for your company

If you have not read the summary of steps in my November post you can see them here. The third step in that list is to apply to the Registrar of Companies (ROC) for a name for your company.

To avoid any kind of legal confusion, there cannot be two companies with the same name in the country. As a matter of fact, if you wanted to borrow a name from a foreign company you would need to get a NOC (non-objection certificate) from them allowing you to register your company with that name in India.

To apply for a name, and book it temporarily for 6 months (if you have not incorporated your company by then, you will need to apply again) you need to fill up and submit the Form 1A. This is a simple form where no much information is required… the only really relevant information are two things:

First, the DIN (Director Identification Number) of the directors (minimum two) for the proposed company (you can read about this in my previous post)

Second, the proposed names: you will have to give a few options (in case they reject the first one or two) and generally you will have to make it a little longer than a one-word name. For instance, instead of being just “Compusoftex” (just a single name), you would have to call it “Compusoftex solutions” or “Compusoftex networks”, or even longer “Compusoftex networks and solutions”… The idea is that you have to give more than one option and usually you would like to keep the name you have come up with plus adding other words which describe your activity.

While submitting this you will have to pay a fee of Rs.500 and you will get a reply to it after a week or two. Before submitting the form, to make almost sure they want reject it (at least not in the basis of availability) you should check whether the name is available. You can do that at the MCA (Ministry of Company Affairs) web-site: go to “Other Services” on the left-hand-side menu and click on “Check Company Name”. The tool does not work perfectly well, but it is useful: if there is a company which matches the name you have entered, you will get a list; but if there is no company with such name or similar you will not get any result at all, not even a message telling you so.

Legal: DIN. Director Identification Number

We always have heard or read about the “board of directors” and “directors’ meetings” of different companies… but who are the directors? How many directors a company can have?

Every Private Limited company must have at least two directors and one of them is the Managing Director (MD). Later on in the process, you will have to submit a series of forms (1A, 1, 18 and 32) in which the details of directors will be given. An essential detail for each Director is the Director Identification Number (DIN).

The DIN is a number provided by the MCA (Ministry of Company Affairs) to each director in India. This number identifies the director and once you have it, you can use the same DIN for as many companies as you wish.

The process is not very complicated, but being almost the first step and not knowing much about these issues I went about it rather cautiously. It involves to submit a series of forms sequentially, DIN1, DIN2, DIN3 and DIN4. However, only DIN1 is essential in the case of a new company and new director.

First, you will have to download the DIN1 form from the MCA web-site. Then, apply online to obtain a so-called “provisional” DIN for the director. In fact, eventually this DIN becomes the definitive one, but they want people first to apply online and then send their papers to the MCA.

Once you get the provisional DIN, you fill up DIN1 and get all the documents required there (identity proof, residence proof, etc) along with the form attested by a Notary (they will charge some Rs.200 for sticking all kind of colourful stamps and rubber stamps). All the documents must be in English or Hindi, otherwise, you must get them officially translated and certified by an embassy, this especially in the case of foreign directors.

When all this is ready you will send these documents to MCA DIN Cell. The address is given in the form. After a few days you will get to know online through the MCA site whether your application has been approved and you have been granted the DIN. Mine was rejected in the first attempt due to one paper which was not well certified according to them. In case of this rejection, you get a letter telling you about it and you also can call to ask the specific reason so that when you apply again, you don’t commit the same mistake. Hence, I again collected all my papers and sent the application which was finally approved.

Due to the embassy certificates which are rather expensive, the total cost of this process was high. Otherwise for an Indian citizen it will be just a few hundred Rupees to apply for the DIN.

A note about DIN for foreign nationals, added on 30 April 2009:

When I was getting my DIN (I'm Mexican) I tried just submitting my papers notarized in India, with the notaries outside Bandra High Court. However, my application was rejected. Later on, I got my documents attested by my embassy in New Delhi, sent them again to MCA, and got them approved. I thought this might be a rule, but it seems I was wrong.

Raju, a reader of the blog, sent me the following message:

[...] I also had a quick question for you with regards to applying for DIN as a foreign director. We are currently facing some issues with getting the documents for DIN attested by the right person/people. My business partner is from the US and it might be difficult for him to travel back to New York to get the documents notarized. On your post on DIN, you mentioned something about embassy charges. Did you get your documents notarized/attested at an embassy in India? If not, is there no other option but to get the documents attested from the US?

After telling him my story, and him trying it out, he came back with the good, but confusing (for me) news:

Just wanted to drop you a note to say we finally managed to get the DIN approved. It was our 4th attempt. :-) The notarisation from the US Consulate was rejected but we were told by the MCA DIN Cell that if the foreign director is in India, an Indian notary can do the attestation as long as a notarised copy of a valid Indian visa is also submitted.

Well... I guess it is matter of trying out different things until it works!

Thanks to Raju for telling me his experience and allowing me to post it here.

Legal: Digital Signature/Certificate

Going back on how to set up a Private Limited company... The first step is to get a digital signature or also called digital certificate.

Not knowing exactly what a digital signature was, before starting to research on it, I got a quite amusing reply from a friend. He told me is just to scan your written signature, save it as a jpeg or gif (an image format) edit it for clarity and finally paste it to whichever document or email you are about to submit. It would have been difficult to be much farther from reality!

The digital signature is a system by which the party receiving your document will be certain that you are the one signing. This is done through a third party who will certify you are the one doing so. Of course, the third party must be a certified company which is well known and reliable to everybody. Some companies offering this are, for instance, TATA or MTNL.

The full process is not too difficult to understand, and you can see it here. I'm sorry, but I can't find a great graphic display which MTNL had in their web-site which would make it easier. However, in few words, when you attach your digital signature to a document and submit it (for instance, the e-forms submitted to ROC), a file is sent to MTNL, which receives it, decodes it and sends another file to ROC telling them, hey, this guy is in deed whom he says to be or at least he has in his computer the key I have given him to tell is himself.

There are several types of Digital Signature (or certificates) and I remember I was rather confused to which I should get. If you are an individual and need to sign the e-forms as the Managing Director of your company (which is what you need for a Pvt. Ltd), then you want a Class 2 Individual Certificate. According to the MTNL site cost for this certificate is Rs.600 for 2 years. Sincerely, I don't know how difficult is to do it on your own because I was short of time at the moment I did it and gave it to the CS (Company Secretary) to do it for me. In that case, the bill came to Rs.1,600 or so.

MTNL seems to be the best option for Digital Certificate because is easier to get it and is less costly than other options, but you may always compare with other companies.

Terror attacks in Mumbai

Last night I happened to be working late on e-mails, while waiting for Peter. He was supposed to check out from the Taj Mahal Hotel in Colaba by 10 pm; we would then come to my house to drop a parcel and from here go to the airport to catch his plane back to his country. Then, we got a call from another friend, informing us of the events going on in the city and it was not hard to guess that Peter was still trapped in the hotel. After a very intense night, thank God now he is safe and resting.

It is really sad to see the amount of terrorism that is going on in the world and very particularly in India itself. Violence cannot be justified by any reason and especially terrorism is a form of violence which goes beyond any limit.

I don't know which their reasons for doing this were, and you can be sure that I do not agree with what they have done. But, if something should be learnt from the terrorists, is their capacity and efficiency with which they planned and executed their attack. I'd wish that all of us were able to work with the same intensity and effort as they did, but for good causes and through good and legal means.

I really hope I'm not misunderstood here. What I mean is that, if there were many more entrepreneurs in the world who worked with the same eagerness to achieve their goals as the terrorists do, but using means which are legal, charitable, socially responsible, and full of other values, I'm sure the world would improve in matter of no time.

Similarly, I'd like that entrepreneurs would learn from the policemen last night; especially of course, those who gave their lives in combat. Certainly, entrepreneurs will not go to die in an encounter, but we should be willing to spend our lives working hard to create more business. If this effort is done not thinking just of oneself, but thinking of society as the policemen were doing last night, their reach in helping society would be as great, even if less known to others.

I know this post is a little off the line of the other posts, but I thought it would be great if all of us bloggers came out to say how we condemn terrorism and what should be done about it... this is my small contribution towards that.

Legal: About Sole Proprietorship, Partnership Firm and Private Limited

Last Friday, after posting on the blog, I had a meeting with my college-friend with whom I'm setting up the new business. We were deciding whether to go directly for a private limited, or to start by a partnership firm or sole proprietorship for some months before registering the company at the ROC.

Prior to this meeting I had read some information about the two proposed forms of business but still had some doubts, hence we went to visit his CA.

This meeting again proved is important to do your homework... I could understand everything thanks to what I had learnt in the morning.

Either partnership firm or sole proprietorship have the same unstable or shaky or at least non-corporate look to other companies, while a private limited looks more reliable to your possible clients.

However, the difference in costs is quite significant. The upfront cost to set up a Private Ltd is at least Rs.15,000 to 20,000 (very minimum); for a partnership firm is about Rs.8,000; finally, for a sole proprietorship is nil: you just need to go to the bank and open your account in the company's name.

This is, as you can read here, because the sole Proprietorship depends directly on its owner, both for liability as well as taxes; in fact, the company and its owner are one. The same way, it is very similar for a partnership firm but the profits and liability is distributed among the partners.

Our conclusion is that for a business which is beginning and a large amount of investments has already been done, you should go for the Sole Proprietorship or Partnership Firm. But if you have time and money is better to go for Pvt. Ltd. as it will give a much more reliable outlook to your enterprise.

Update on 23-02-11: Would you like to see the Spanish translation? Click here!