prpri Formation of Company – Section 3 of Companies Act, 2013 Formation of Company – Section 3 of Companies Act, 2013

Section 3 of the Companies Act, 2013 talks about formation of company and according this section company can be formed for any lawful purpose. This section mandates minimum number of person(s) or member(s) required for forming a company and following are three types of company on the basis of membership as per section 3 of the Companies Act, 2013:

1. One Person Company (section3(1)(c) of Companies Act, 2013 and Rule 3, 4, 5, 6 & 7 of Companies (Incorporation) Rules, 2014)- This is a new type of company which is the creature of Companies Act, 2013 and under the Companies Act, 1956 there was no such kind of company. You must be aware that most numbers of business forms are proprietorship and OPC is tool to have company only with one natural person who must be Indian citizen and resident in India i.e who has stayed in India for at least 182 days in immediately preceding financial year. It means other person (like company, LLP etc.) cannot go for OPC incorporation. Minimum and maximum person can be only one in OPC. To stop OPC from becoming member less company or incapacity of sole member’s to contract, there is requirement to have nominee in case of OPC and nominee is required to give consent in form INC-3 and this form is filed with ROC as an attachment to incorporation form INC -32 (SPICe) and INC-3 can be downloaded from and after filling and getting signed from nominee this form will be filed as an attachment with incorporation form. Nominee can himself withdraw his consent by giving notice in writing and nominee can also be changed by sole member.

There is lock-in period of 2 years from the incorporation and during this period OPC cannot voluntarily convert itself into private or public company, however conversion is possible  even before 2 years if paid up capital exceed 50 lakh or average annual turnover exceeds 2 crore during relevant period. Private company can also convert itself into OPC after fulfilling certain conditions.

There is also penalty for not complying with the rules (refer rule 5 of Companies (Incorporation) Rules, 2014)

2. Private Company (Section 3(1)(b) of Companies Act, 2013)- Minimum number of person required for formation of private company is two and earlier in Companies Act, 1956 this was same but maximum number of members in private company has been increased from 50 to 200 (refer section 2(68)(ii))

3. Public Company (Section 3(1)(a) of Companies Act, 2013)- Minimum number of persons required for public company is 7 and there is no limit on maximum number of members in public company. Practically there are listed companies which have lakhs of shareholders.

Apart from above there is also Producer Company which is treated as private company where at least 10 persons are required for forming Producer Company and probably this is the only part of Companies Act, 1956 which is alive and has not been repealed yet.

Disclaimer – Author has exercised utmost care while writing this article, but still this article may contain some error or mistake and no part of this article/writing should be construed or considered as any advice or consultancy whether professional or otherwise.

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Qualification: CA in Practice
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Member Since: 26 Jan 2018 | Total Posts: 30
Chartered Accountant having more than 6.5 years of very rich experience in the field of GST, Custom, Income-tax, Company law, LLP law, Corporate law, pre-GST regime indirect tax laws (VAT, Service tax,, Excise law etc.), FCRA, FEMA, Accounting, Financial reporting, Ind-AS, IFRS, stock market etc. View Full Profile

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July 2021