Jul 02,2020 | 10 min read

Incorporation of Companies with Zero Fees and Authorised Capital Upto 10 Lakhs by Samar Inam Khan

Through notification G.S.R. 48(E).—  MCA(Ministry of Corporate Affairs) amended the Companies Act 2013 by exercising the powers conferred to them by sections 396, 398, 399, 403 and 404 read with sub-sections (1) and (2) of section 469 of the Companies Act, 2013 (18 of 2013). It came into effect from 26 January 2018. It quashed the incorporation fees to zero for the companies with an authorized capital up to 10 lakh in case of shared capital and where the number of members is 20 in case of non-shared capital (though the stamp duty on MoA and AoA is still payable). Incorporation costs are those costs which a company has to bear before it even starts a business and by limiting these costs, more startups and small businesses will be able to grow because the capital amount required will be less.

Owing to the amendment made by the MCA now, these companies will only have to pay the stamp fees and not the incorporation cost which will help them save on a lot of capital and help them bloom this was the motive behind the amendment. This was done to uplift India’s rank in the ‘Ease of Doing Business Index’ and to encourage small companies and startups as, now, they will only have to pay the (minimal) stamp fees to register any private limited company. This was a follow up to the ‘Make in India’ initiative launched by PM Modi.

The Ministry of Corporate Affairs (MCA) has listed major reforms/ initiatives under the ‘Ease of doing business’ head. Firstly, Incorporation with zero fees is done in cases the companies where the authorized capital of the company is ten lacs in cases of shared capital and where the number of members are 20 in cases of non-shared capital. This has resulted in making the procedures easy by merging five procedures into one by the introduction of SPICe. Also, no company seal is required following the Company (Amendment) Act, 2015 further simplifying the process. Furthermore, it has also led to a reduction in time for name reservation because the form INC-1 which was used for the purpose has been replaced with web service.

Company Incorporation Procedure in India: 2018 Guide | LegalRaasta

Secondly, launching SPICe (Simplified Proforma for Incorporating Company Electronically) in place of INC-29. This is an e-form was launched to make the process easier and straightforward by merging five procedures of the application for the company name, PAN, TAN, company incorporations and DIN of directors into one. 

Thirdly, the introduction of RUN (Reserve Unique Name) form. Before the introduction of this form, the process of incorporation was a lengthy one. It required the companies to send the name through the e form INC-1 which further required DIN (director identification number) of at least two directors which was followed by the sign of at least one DSC on the e-form and after submitting and Paying fees Incorporation was done. Now it has become more comfortable through the introduction of RUN(Reserve Unique Name) form which does not require all these, therefore, simplifying the process. 

And finally, the establishment of central registration centres (CRC), integration of MCA21 with CBDT, protecting minor investors, easing the process of adding the name of a director(DIN) etc.

One of the principal aims of quashing the fees was to make, starting a business smoothly in India and ultimately to uplift India’s rank in the Ease to do business index. The ease of doing Business is a benchmark study of regulation. It is calculated by a survey consisting of a questionnaire which centres on a simple business case that ensures comparability across economies and over time bases assumptions on the legal form of the business, size, location, and nature of its operations. The ease of doing business index is meant to measure regulations directly affecting businesses.

 World Bank released its annual report named ‘Doing Business 2020: Comparing Business Regulation in 190 Economies’ on October 24, 2019. India ranked 63 out of 190 countries climbing 14 rungs since the last year and 79 rungs since 2014. In the 6 years of NDA, India climbed up from 142 to 63 carving its way into the world’s top 10 ‘most improved countries’ for the third consecutive time. Though it failed to achieve its target to be in the top 50, this achievement is also commendable. The world bank country director in India, Junaid Ahmed said’ India’s rank in the Ease of  Doing Business is a tremendous achievement, especially for a large and complex country like India. Particular focus by the top leadership of the country, and the persistent efforts made to drive the business reforms agenda, both at the central level and state level, helped India make significant improvements’

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Samar Inam Khan

Advocate & Arbitrator since 2003