Drafting Memorandum and Articles of Association

When I first started setting up the company, I wanted to do as much as possible (I hoped everything would be) on my own, until I reached the point for drafting the Memorandum of Association and Articles of Association. That's what made me decide that I needed professional help.

The MoA and AoA (short forms for Memorandum and Articles of Association respectively) are drafted by solicitors. I think the best way to do it, is through your Company Secretary who already knows well what you want and what you need, and for sure will be in contact with a good solicitor who can do the job within your budget (considering the fees of the CS are already within your budget, of course).

The MoA and AoA are quite important for the future development of your company. They will state what your company does. Hence, if the panorama of the MoA and AoA is not wide enough, you will find yourself into trouble when you plan to expand the services or products offered by your company, as in theory, your company should not be doing that stuff. Thus, when drafting the MoA and AoA ask the solicitor to try to include as many services and products as you can think of, which of course, are in a way related to the main service you are starting with.

For instance, if you are planning to set up a company to sell pencils, don't write just pencils in your MoA and AoA. It would be better if you write manufacturing and selling of stationery items, paper making and recycling, printing, publishing, etc, i.e. all kind of related activities which one day may fall in your sphere. The idea is that, when more business opportunities come your way, you do not be constrained by something as small as this. I guess you would just have to re-draft the MoA and AoA, but why to take the trouble if you can avoid it?

Re-submitting an eForm

In the latest form I submitted I've been asked to clarify certain points. Now what do I do?

This happened to me this week after submitting Form 1A the other day. Few days after submitting I checked the "Transaction status" and found out that it was "Waiting for Clarification". As far as I had read, it was required to re-submit the form. However, when I tried doing it, the system didn't allow me.

I contacted via e-mail the MCA people and they replied very quickly and to the point after one or two days. Now they had changed my status and I could re-submit the form.

Today, while trying to do so it took me a while to find out how to do it, but finally got it: in the home landing page there are three tabs below the main horizontal menu which say: Services, eForms and MyDocuments. My mistake was to think everything I could do in the site was under the tab services. For re-submit you have to go to "eForms", where you will find a button "eForm Upload". There, if you enter the SRN (Service Request Number) and click the Re-Submit button you will get a Java app window through which you will be able to upload.

Again, make sure you have downloaded and filled up a fresh Form 1A before you re-submit, otherwise, the system will reject you automatically.

e-Filing: Submitting forms at Ministry of Company Affairs

Submitting a form has always scared me as something being a waste of time: filling up a form without knowing for sure what to write, standing on a queue for a long time, getting a challan and go to pay it at another place, go back with the receipt and get the acknowledgment, etc. Or get a middle man who would do this for you and twenty other people at a much quicker pace but opening a wide space for illegalities and corruption which ultimately harm the whole system.

Thank God, the Ministry of Company Affairs decided to do away with all that not very long ago. Now-a-days, you can only submit forms through their e-Filing system at www.mca.gov.in. From there you can do everything, from downloading the pdf form to paying the fees and getting your approval or whatever you are trying to get.

Today I submitted my application for a new company which I’m opening with my friend.

First, you need to register in the site. At least, for submitting Form 1A it is enough to register as a “Registered User” (the other option is “Business User”).

Once you are inside, do read the steps for filing forms. An interesting warning they give there is that you should download the latest form every time you want to submit a form as they change often (in my case I had filled up an old Form 1A I had saved from last year, and had to do it again in a newly downloaded form).

You will see it is quite a simple procedure: download the form, fill it up, pre-scrutinize it (correct any errors you may get), add your digital signature to the form, submit it… all of this through a Java applet (get ready to wait for few seconds/minutes while the whole thing is uploaded). Then, you will be re-directed to the payment get-way which may be through net banking (there are only a few options of banks), credit card or printing a challan and paying at the bank physically (I guess this is in case you want to remain in the old good times).

After you have paid you will get a confirmation message, but which disappears in almost no time. Thus, just in case, check the payment status. If it says PAID, then great, otherwise you will have to use the re-submission facility (you should have taken note of your SRN) and pay again.

All of this is, of course, for Form 1A, where you don’t need the signature of a Company Secretary or Chartered Accountant. Later on, for other forms you will need it and most probably they will do the for you.

By the way, as a correction to my previous post a name through Form 1A is now only for 60 days, instead of 6 months as it used to be earlier. For renewing you have to pay Rs.250 in case you haven’t incorporated your company yet.

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.