FORMATION OF A COMPANY

STAGES IN THE FORMATION OF A COMPANY

PROMOTION

INCORPORATION OF A COMPANY

CAPITAL SUBSCRITON

COMMENCEMENT OF BUSINESS

PROMOTION OF A COMPANY

First stage in the formation of a company

Promotion means the initial work involved in

bringing a business concern into existence and

making arrangements for its proper running

PROMOTER

Promoter is a person who undertakes to

form a new company and carries out all the

preliminary work in connection with its

establishment as a going concern.

TYPES OF PROMOTER

Professional Promoters

Occasional Promoters

Entrepreneur Promoters

Financier Promoters

PROFESSIONAL PROMOTERS

Promotion is their main profession or

occupation

They are experts who specialise in company

promotion. They float the company and hand it

over to the shareholders or their representatives.

OCCASIONAL PROMOTERS

These promoter take interest in floating some

companies

They take up the promotion of some company and

once it is over they go to their original profession

Eg. Engineers, lawyers etc… may float some

companies

ENTREPRENEUR PROMOTERS

They are both promoters and entrepreneurs.

They conceive idea of a new business unit,

do the groundwork to establish it and

subsequently become a part of the

management.

FINANCIER PROMOTER

Some financial institutions like investment

banks or industrial banks, may take up the

promotion of a company with a view to

finding opportunities for investment.

FUNCTION OF A PROMOTER

Identification of Business Opportunities

Feasibility Studies

Name Approval

Fixing up signatories to the Memorandom of Association

Appointment of Professionals

Preparation of Necessary Documents

INCORPORATION

Second stage in the company formation

A company is said to be incorporated when

it is registered with the Registrar of Joint

Stock Companies.

The following documents are required to

be submitted to the Registrar of Companies:

Memorand of Association

Articles of Association

Agreement with the proposed directors

A copy of the Registrar’s letter approving the name of the company

A notice about the exact address of the registered office

Documentary evidence of payment of registration fees

A statutory declaration that all the necessary requirements of the law

for registration have bee complied with

MEMORANDOM OF ASSOCIATION

It is the Charter or Magna Carta of the

company.

Most important document of the company

with which a company is registered

It defines the company’s objects, capital and

power

It governs the outside relationship of the

company

CONTENTS OF MEMORANDOM OF ASSOCIATION

Name Clause

Registered Office Clause

Objects Clause

Liability Clause

Capital Clause

Association Clause

ARTICLES OF ASSOCIATION

It is to be filed with the registrar to get the

company registered.

It contains the rules and regulations for

internal management and administration of

the company

MEMORANDOM OF ASSOCIATION

ARTICLES OF ASSOCIATION

Constitution or charter

Fundamental document

Relationship between

company and outsiders

Compulsory

Contains the objects of

the company

Bye-laws of the company

Subsidiary document

Company and its members

Not compulsory

Mentions the ways by which the

objects can be achieved

CAPITAL SUBSCRIPTION

Third stage in the company formation

Here, the public company can raise the

required funds from the public by means of

issue of shares and debentures

The following steps are required for raising funds from the public:

SEBI Approval

Filing of Prospectus

Appiontment of bankers, brokers and underwriters

Minimum subscription

Application to stock exchange

Allotment of shares

PROSPECTUS

The Companies Act defines prospectus as “any

prospectus, notice, circular, advertisement or

other document inviting deposits from the public

or inviting offers from the public for subscription

or purchase of any shares or debentures of a body

corporate”

COMMENCEMENT OF BUSINESS

Last stage in the formation of a company

At this stage, the ROC issue a Certificate of

Commencement of Business to a public company

After getting this certificate, the company can

start its business