Revised Form URC-1 - Company Registration under section 366

What is a Public Company?

A public company, also known as a publicly traded company, is a corporation whose shares are freely bought and sold by the public on stock exchanges or over-the-counter markets. Key aspects of a public company include:

• Unlimited number of shareholders.
• Shares are publicly traded and easily transferable.
• Must issue a prospectus before offering shares to the public.
• Strict disclosure and reporting requirements.
• Ability to raise substantial capital through public markets.
• Governed by a board of directors responsible to shareholders.

Public companies must comply with stringent regulations set by securities commission like the the Securities and Exchange Board of India (SEBI). These regulations ensure transparency, protect investor interests, and maintain market integrity.

Features of Public Limited Company

1. Free transferability of shares: Shares can be freely bought and sold on stock exchanges, providing liquidity to investors.
2. No limit on number of shareholders: There is no restriction on the maximum number of shareholders a public company can have.
3. Prospectus requirement: Public companies must issue a prospectus before offering shares to the public, disclosing key information about the company.
4. Public disclosure of financials: Public companies are required to publicly disclose their financial statements on a regular basis.
5. Strict compliance norms: Public companies are subject to stringent regulations and disclosure requirements set by governing bodies like SEBI.
6. Access to capital markets: Public companies can raise substantial funds from a large pool of investors through various securities like IPOs, FPOs, rights issues and preferential allotments.
7. Listing on stock exchanges: The shares of public companies are listed and traded on recognised stock exchanges.

What is a Private Company?

A private company, also referred to as a privately held company, is a business entity whose shares are not publicly traded. Ownership is closely held by a limited group of shareholders, such as founders, family members and private investors. Key characteristics of a private company include:

• Limited to a maximum of 200 shareholders
• Shares are privately owned and not freely transferable
• Minimal disclosure requirements and greater privacy
• Raising capital through private means like angel investors or venture capital
• Closely controlled and managed by founders and early investors

Private companies have more flexibility in their operations and decision-making as they are not subject to the same level of public scrutiny and regulatory oversight as public companies.

Features of Private Company

1. Restricted share transfer: Shares of a private company cannot be freely transferred and are subject to restrictions outlined in the company's articles of association.
2. Limited number of shareholders: Private companies can have a maximum of 200 shareholders.
3. No prospectus requirement: Private companies are not required to issue a prospectus to the public for raising funds.
4. Confidentiality of financial information: The financial statements of private companies are not publicly disclosed and remain confidential.
5. Fewer compliance requirements: Private companies have lesser compliance and regulatory filing requirements compared to public companies.
6. Flexibility in management: Private companies have greater flexibility in their management structure and decision-making processes.
7. No requirement for a statutory meeting: Private companies are not required to hold a statutory meeting or file a statutory report.

Public Company Vs Private Company

Following are the key differences between public and private companies:

The choice between operating as a public or private company depends on various factors such as the company's capital requirements, desired level of control and flexibility, willingness to disclose financial information, and long-term objectives.

Can A Public Company Convert into a Private Company and Vice Versa?

Yes, a public company can be converted into a private company and vice versa, subject to certain conditions and procedures outlined in the Companies Act 2013.

To convert a public company into a private company, the following steps need to be taken:

1. Pass a special resolution in a general meeting of the company to approve the conversion.
2. Alter the company's memorandum and articles of association to reflect the changes required for a private company.
3. File an application with the National Company Law Tribunal (NCLT) for approval of the conversion.
4. Obtain approval from the NCLT after considering any objections or suggestions from regulatory authorities or other stakeholders.
5. File the NCLT order approving the conversion with the Registrar of Companies (ROC) within 30 days.
6. The ROC will issue a fresh certificate of incorporation reflecting the company's status as a private company.

Similarly, a private company can be converted into a public company by following these steps:

1. Pass a special resolution in a general meeting of the company to approve the conversion.
2. Alter the company's memorandum and articles of association to comply with the requirements of a public company.
3. Increase the number of directors to the minimum required for a public company (3 directors).
4. File an application with the ROC for approval of the conversion.
5. Obtain approval from the ROC after ensuring compliance with all the necessary provisions.
6. The ROC will issue a fresh certificate of incorporation reflecting the company's status as a public company.

Conclusion

Understanding the differences between private and public companies is crucial for entrepreneurs, investors and other stakeholders. While public companies offer the advantage of access to public capital and liquidity for shareholders, they also face stricter compliance requirements and public scrutiny. On the other hand, private companies provide greater control and flexibility to shareholders but have limitations in raising capital and providing liquidity to investors.

Regardless of the choice, both private and public companies play vital roles in the economy, driving innovation, creating jobs, and contributing to overall economic growth. Understanding their distinct characteristics and the implications of each structure is essential for navigating the complex world of business and making sound decisions.

Frequently Asked Questions

What is an LC (Letter of Credit)?

A Letter of Credit (LC) is a document issued by a bank that guarantees payment to a seller on behalf of a buyer, provided that certain conditions are met. This financial instrument ensures payment security and mitigates risks associated with cross-border transactions. The issuance of an LC involves specific conditions, like the submission of required documents, which the bank reviews before releasing funds. It provides bank guarantees and incurs fees that are essential for its operation.

Examples of Letters of Credit

International Trade Example: A U.S. company wants to buy machinery from an Indian exporter. The U.S. company requests its bank to issue an LC to the Indian exporter. Once the exporter ships the machinery and presents the required documents to their bank, they receive payment from the issuing bank, ensuring trust and mitigating payment risk.

Domestic Transaction Example: A large retail chain uses an LC to purchase inventory from a local supplier. The LC guarantees that the supplier will receive payment as soon as they fulfill the delivery conditions outlined in the agreement.

Basics of a Letter of Credit Transaction

Applicant

The buyer who requests the LC from their bank. They initiate the process by applying for the LC and specifying the terms and conditions of the trade.

Beneficiary

The seller who receives payment through the LC. They must present all required documents correctly to receive payment.

Issuing Bank

The bank that issues the LC on behalf of the applicant. They verify the buyer's creditworthiness and commit to making the payment when conditions are met.

Negotiating Bank

The negotiating bank in LC that examines documents presented by the beneficiary and facilitates payment. They ensure all paperwork matches LC requirements perfectly.

The process begins when the applicant approaches their issuing bank for an LC. The issuing bank then coordinates with the negotiating bank to establish terms and verify documents before releasing any funds.

Importance of Letters of Credit

Secure Payments

They ensure that sellers receive payments without requiring advance payments, reducing risk for both parties involved in the letter of credit.

Facilitate Cross-Border Transactions

LCs simplify complex international transactions by providing a standardised payment mechanism across different countries.

Secure Business Funding

They provide businesses with necessary funding while verifying creditworthiness, helping companies maintain healthy cash flow.

Financial Assurance

LCs offer security when buyers cannot pay, acting as a guarantee backed by reliable banking institutions.

Advantages of Letters of Credit

Ease International Trade: Simplifies complex transactions across borders by providing a structured framework for payment and documentation.

Foster Global Business Connections: Builds trust between trading partners by removing payment uncertainty and providing bank-backed guarantees.

Provide Flexibility: Customisable terms to suit various transaction needs, including payment timing, shipping requirements, and document presentation.

Parties to Documentary Credit

Commercial/Trade Parties: The buyer and seller form the core of the transaction, initiating and completing the trade deal.

Banks: Issuing and advising banks serve as intermediaries ensuring secure payment and proper documentation.

Related Entities: Shipping lines and insurers support the transaction by handling logistics and risk management aspects.

Types of a Letter of Credit

Sight Credit

A Sight Credit allows instant payment upon presenting the correct documents, providing immediate access to funds for sellers. For example, if a businessman needs quick access to cash after shipping goods, they can use this type of credit.

Acceptance Credit/Time Credit

Acceptance or Time Credit involves bills that are accepted upon presentation and paid on specified due dates. This type allows sellers to receive payments after a set period.

Revocable Letter of Credit

A Revocable Letter of Credit can be canceled or modified by the issuing bank without beneficiary consent, which limits its reliability in ensuring secure transactions.

Irrevocable Letter of Credit

An Irrevocable Letter of Credit guarantees payment once certified by the exporter’s bank. This type provides security for international transactions and is often preferred by exporters due to its reliability.

Confirmed Letter of Credit

A Confirmed Letter of Credit involves both issuing and confirming banks. The confirming bank guarantees payment to the beneficiary, holding equal liability as the issuing bank, ensuring that payments will be honored upon proper presentation.

Back-to-Back Letter of Credit

This type involves issuing a second LC based on the security provided by the first LC. It is commonly used to secure payments for suppliers in international trade transactions.

Transferable Letter of Credit

A Transferable Letter of Credit allows the primary beneficiary to transfer credit partially or fully to another beneficiary, typically a supplier. However, once transferred, the second beneficiary cannot transfer it further.

Restricted Letter of Credit

A Restricted Letter of Credit specifies a particular bank responsible for payment, limiting its scope compared to unrestricted LCs. This type is often used when specific banks are preferred due to their reliability.

Revolving Letter of Credit

A Revolving Letter of Credit allows reuse after payments or drawings are made. This flexibility is beneficial for businesses requiring multiple shipments or ongoing transactions under one credit arrangement.

Precautions to be Taken

Verify Bank Reliability: The issuing bank must be reliable and well-known to both parties of the letter of credit. This helps minimise risks and ensures the LC will be honored when presented.

Local Bank Verification: It's essential to advise through an Indian bank and confirm the authenticity of the LC. The local bank can verify the legitimacy of the foreign bank and ensure all documents meet local regulations.

Clarify Financial Terms: Make sure to clearly establish who covers all bank charges and confirm freight payment terms as specified in contract agreements. This prevents disputes and unexpected costs during the transaction process.

Import Export Code

The Import Export Code (IEC) is a mandatory document required for all businesses involved in international trade. This code streamlines customs clearance, enables duty benefits, and ensures regulatory compliance. Through platforms like Razorpay Rize, businesses can obtain their IEC within 6-7 days which makes the process efficient and straightforward.

Frequently Asked Questions

Rules for Selecting Company Name Under the Companies Act

When you select a company name, it must comply with the Companies Act to ensure uniqueness and legal approval. Here are the key rules to follow:

Avoid Similar or Identical Names

Your company name must not closely resemble an already registered business. The ROC conducts a company name check, and if the proposed name is found to be too similar to an existing one, it will be rejected. For example, if "GreenTech Solutions Pvt Ltd" is already registered, "GreenTech Solution Pvt Ltd" may be rejected due to similarity.

Restriction on Certain Words

You cannot use words that suggest a connection with the Central or State Government, local authorities, or government bodies, unless prior approval is obtained. For instance, names like "India National Bank Ltd" or "Government Infrastructure Pvt Ltd" require special permissions.

Prohibited Expressions

Some words and expressions are restricted under Rule 8B of the Incorporation Rules. You must seek approval from the Central Government before using them in your LLP or company name.

Mandatory Suffix for Entity Type

The company name must clearly indicate its legal structure.

• A One Person Company (OPC) should have "(OPC) Private Limited" in its name.
  
• A Private Company must include "Private Limited" (Pvt Ltd).
  
• A Public Company must end with "Limited" (Ltd).
  

A Brief About Acceptable Name for LLP

An acceptable LLP or company name in India consists of three key components. The Name Part that gives the business a unique identity, such as "Bright" in Bright Solutions LLP. The Object Part that reflects the company's activity, like "Solutions" indicating a service-based business. The Constitution Part that defines the legal structure, such as "LLP" in Bright Solutions LLP.

Name Part

The Name Part is the unique and distinguishable element of a company or LLP name. It must comply with the Companies Act 2013 or the LLP Act 2008 and should not be identical or deceptively similar to existing companies, LLPs, or registered trademarks within the same industry. The ROC verifies the name to ensure distinctiveness and prevent duplication.

For example, a name like Bluewave Technologies LLP is acceptable because it is unique and clearly identifiable. However, Bluewave Tech LLP may be rejected as it closely resembles an existing name. Similarly, GreenVista Textiles Private Limited is a valid name, but Green Vista Private Limited may be considered too similar to an existing business and could face rejection. Ensuring a distinct name that does not match or closely resemble an existing company improves the chances of approval.

Object Part

The Object Part in a company or LLP name defines its primary business activity. It must be clearly stated to indicate the company's purpose and ensure compliance with naming regulations.

If two companies have similar name parts but different object parts, both names may still be approved, as long as they belong to distinct industries. However, names without a clear object part or with generic words like "dash Private Limited" are too vague and may be rejected by the ROC because it does not specify what the company does.

Related Read: Difference Between LLP and Partnership

Examples of Common Object Parts in Company and LLP Names

Constitution Part

The Constitution Part indicates the legal structure of the business. It must match the type of entity being registered, ensuring clarity in compliance and business operations. Here are the specific terms which are used for different entities:

• Private Limited Company (Pvt Ltd) - For privately held businesses
  
• One Person Company (OPC) - For single-owner companies
  
• Limited Company (Ltd) - For publicly listed businesses
  
• Limited Liability Partnership (LLP) - For partnership-based entities with limited liability
  

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Minimum Authorised Capital For Certain Words

When registering a company, using specific words in its name requires meeting minimum authorised capital requirements as per the Companies Act 2013. Words like "Corporation," "International," and "Industries" have higher capital requirements to ensure that only financially strong businesses use them. This helps maintain credibility and prevents misuse of these terms by companies with limited resources.

Before you apply to register a company name, verifying the capital requirements is essential to ensure compliance and avoid rejection. The table below outlines the required minimum authorised capital for specific words:

When Will Companies House Refuse to Register a Company Name?

Companies House may reject a name if it does not comply with legal guidelines. Below are the key reasons why a company name may be refused:

• Identical or Too Similar to an Existing Name: If the proposed name is the same or closely resembles an already registered company, it will be rejected.
  
• Offensive or Illegal Names: Any name containing offensive, abusive, or illegal terms will not be approved.
  
• Implying Government Affiliation: Names suggesting an association with the government, public authorities, or international organisations require special approval.
  
• Use of Sensitive Words or Symbols: Certain words, such as "Royal," "Bank," or "Trust," require prior consent before use.
  
• Misleading Use of Business Terms: Using terms like "Limited" (Ltd.), "Public Limited Company" (PLC), or "LLP" incorrectly or misleadingly can lead to rejection.
  

Objections to Company Names

Even after registration, objections to a LLP or company name may arise if it does not comply with legal requirements. Ensuring that the name is unique and non-misleading is crucial to avoiding disputes. Common reasons for objections include:

• Too Similar to an Existing Business: If a company name closely resembles another registered entity, the affected business can file an objection.
  
• Misleading Information During Registration: If false or inaccurate details were provided while registering the name, objections may be raised.
  
• Failure to Meet Registration Conditions: A name that does not adhere to naming regulations or lacks necessary approvals may face challenges.
  
• Opportunistic Registration: If a name is registered to take advantage of another company’s goodwill, it can be legally disputed.
  

Related Read: How much does an LLP cost in India?

How to Check Company Name Availability Online?

Before registering a company, you must check whether the proposed name is available to avoid rejection. The Ministry of Corporate Affairs (MCA) portal provides an online tool to verify company name availability. Here’s a step-by-step guide to checking a company name online:

1. Visit the MCA Website: Go to www.mca.gov.in.
2. Access the Name Availability Tool: Under the ‘MCA Services’ section, select ‘For Services’ from the drop-down menu and then select ‘Check Company/LLP Name’.
3. Enter the Proposed Name: Type the desired company name in the search box and click on the ‘Search’ button.
4. Review the Results: The portal will indicate whether the name is available or already registered.

Additional Checks for Better Approval Chances

• Trademark Search: Use the Razorpay Rize Name Search Tool to check for potential trademark conflicts.
• Alternative Name Options: Verify multiple name options to avoid rejection and ensure compliance with naming rules.

Conclusion

Choosing the right company or LLP name is crucial for legal compliance and brand identity. Ensure the name is unique, relevant, and adheres to MCA guidelines to avoid objections. Conduct a thorough name availability check on the MCA portal and verify potential trademark conflicts before finalising a name. A well-chosen name not only simplifies registration but also builds a strong brand identity while ensuring long-term legal compliance.

Frequently Asked Questions