India: Company Incorporation Gets Easier

INTRODUCTION

In continuation of its attempts to further facilitate ease of doing business in India, the Ministry of Corporate Affairs (hereinafter referred to as “MCA”) has taken another bold initiative in Government Process Re-engineering (hereinafter referred to as “GPR”) and launched a Simplified Proforma for Incorporating Company Electronically (hereinafter referred to as “SPICE”) e-form, for incorporation of Company.[1] SPICE has been introduced with an intent to phase out the existing INC-29 (Integrated Incorporation Form) and INC-7 [Application for Incorporation of Company (other than One Person Companies)].[2] The new incorporation e-form SPICE - INC-32 – more or less provides the same facilities as were provided in Form INC-29, but has further integrated many steps in a single process such as reservation of name, incorporation of a new company and/or application for allotment of Director Identification Number (hereinafter referred to as “DIN”).[3]

SPICE seeks to facilitate the e-filing process and provide a completely digital and simplified process primarily making the whole affair of establishing a company swift and effortless. SPICE seeks to provide speedy incorporation related services within stipulated timeframe and bringing them in line with international best practices.

CHARACTERSTICS OF SPICE

SPICE attempts to provide the following:[4]

Simplify and completely digitalize Company incorporation procedures;
Memorandum and Articles to be filed as linked e-forms;
Gaining bank office productivity due to faster review of e-MOA and e-AOA by approving authorities;
Provision to apply for Company Incorporation with a pre-approved Company Name;
Only digital signatures of Subscribers and Witnesses (max 7+1) in SPICE Memorandum of Association and SPICE Articles of Association required;
Save time and un-complicate the incorporation process; and
Facilitating registration and procuring of Company’s Employee’s State Insurance, Tax Deduction Account Number and Permanent Account Number.

*Disclaimer: Mandatory documents are also to be submitted while filing the forms. These documents include: address and identity proof, affidavits and declarations (by subscribers and directors), NOCs and other appropriate approval certificates as briefed in the form.

ANALYSIS

If implemented efficiently SPICE can definitely bring in the much-needed rapidness in the incorporation procedure. This move is directed towards bringing the economic growth and facilitating ease of doing business in India, which it is certainly going to bring in provided it is meticulously implemented.

In addition to this, various government departments are joining hands to further simplify the procedures for starting a new business in India. These steps include the allocation of both PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) within 24 hours, processes, which took a minimum of 15-20 days depending upon various approvals.[5] This move accompanied with SPICE for incorporation can definitely encourage new entrepreneurs and reduce the time in official formalities. Such speedy services to be conducted and completed within a stipulated timeframe are meant to be in line with international best practices.

India has recently ranked 130 in the world bank rankings for ease of doing business, which has been more of a wake up call for the country legislators, who are now incorporating measures to expedite and simplify the process and procedures to encourage drastic improvements of incorporation procedures.[6] Besides this, enforcement mechanisms are also improving with establishment of commercial courts and constant endeavours to make courts paperless by including e-courts and e-filing services. Besides this, India is also aiming towards becoming an arbitration hub (opening of the Mumbai arbitration center) along with the assent to the Insolvency and Bankruptcy Code 2016 and General Sales Tax rollout expected this year, the business environment is sure to improve in the country as enforcement shall be accompanied by timely resolution and certainty in recovery, which is expected to streamline registration procedures.

With the government adopting the aforesaid mechanisms and removing major hindrances in starting a new business in India, the investments are expected to improve drastically as this will also reduce investments being locked up for an extended time within the country.

While this does reduce paperwork at the incorporation stage, the responsibility for verification and collection of documents shall now rest upon the digital signature issuing authorities since each signatory to the eMOA and eAOA will have to record his approval using digital signatures.

Vide the Companies (Incorporation) Amendment Fifth Rules, 2016 dated 29th December 2016, INC-2 is deprecated and INC-7 shall be used for incorporating Part I Companies and companies with more than seven subscribers only. The revised INC-7 has been made available on the portal for filing purposes w.e.f 15th January 2017. For incorporating OPCs and Companies (with up to seven subscribers), only SPICe (INC-32) shall be used henceforth. The filing fee for SPICe has also been reduced along with the number of permissible resubmissions. The detailed FAQs on e-filing are available on the portal for the information of stakeholders and can be accessed here.

The challenge was and still will be the smooth implementation of the processes electronically, which is the stage where most failures in processes have been noted and which is the root cause of the countless delays suffered by users of MCA services. If the enabling infrastructure can be spruced up these new forms can truly add SPICE to the lives of businesses in India.

Disclaimer: The views and opinions expressed in this article are based on extensive and thorough research. In no way does the author or the law firm claim ownership of the ideas and concepts presented in this paper. Information so provided is to be strictly considered for general reference of the subject matter, which has been adequately referenced. Specialist advice should be sought about any specific circumstances directly from the law firm.

REFERENCES

[1] MCA Notification, ‘MCA takes another initiative in Government Process Re-engineering’, available at <http://www.mca.gov.in/Ministry/pdf/SPICEPress_Release_03102016.pdf > accessed on 10 January 2017

[2] Ibid 1, at 2

[3] MCA, ‘SPICE e-Form with Instruction Kit’ available at <http://www.mca.gov.in/MinistryV2/companyformsdownload.html > accessed on 10 January 2017

[4] Ibid 1, at 1

[5] PTI, ‘Companies to get PAN, TAN within a day; paperless application starts’ (Economic Times, 22 July, 2016) available at < http://economictimes.indiatimes.com/news/economy/policy/companies-to-get-pan-tan-within-a-day-paperless-application-starts/articleshow/53335515.cms > accessed on 02 February 2017

[6] The World Bank, ‘Doing Business, Measuring Business Regulations’, available at <http://www.doingbusiness.org/data/exploreeconomies/india > accessed on 02 February 2017