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FORMATION OF COMPANY

The document outlines the process of company promotion, incorporation, capital raising, and commencement of business as per the Companies Act, 2013. It defines a promoter's role and responsibilities, details the necessary documents for incorporation, and explains the differences in capital raising for private and public companies. Finally, it describes the steps a public company must take to commence business after obtaining its certificate of incorporation.

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1 views

FORMATION OF COMPANY

The document outlines the process of company promotion, incorporation, capital raising, and commencement of business as per the Companies Act, 2013. It defines a promoter's role and responsibilities, details the necessary documents for incorporation, and explains the differences in capital raising for private and public companies. Finally, it describes the steps a public company must take to commence business after obtaining its certificate of incorporation.

Uploaded by

tillingtabing20xx
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.

Promotion of a company
The expression ‘promotion’ is a very wide term that includes all the preliminary
steps that are taken for the purpose of the formation of a company.
The process of promotion begins with the conceiving of an idea and ends with
the establishment of the business enterprise and commencement of its business.

Promoter – Promoter has been defined under Section 2(69) of the Companies
Act, 2013.
Sec 2(69) – “promoter” means a person—
a) who has been named as such in a prospectus or is identified by the
company in the annual return referred to in section 92; or
b) who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise; or
c) in accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act:

A promoter is to a company, as parents are to a child. The promoter has a


fiduciary relationship with the company. He is the person who is concerned
with the promotion of business enterprise. He conceives the idea of starting a
business and takes all the measures required for bringing the enterprise into
existence.

The promoters find out the ways to collect money, investigate business ideas,
arrange for finance, assemble resources and establish an enterprise. The
promoter is neither a trustee nor an agent of the company.

2. Incorporation of a Company
Registration brings a company into existence. A company is properly formed
only when it is duly registered under the Company Act.

The procedure for registration has been clearly stated in Section 7 of the
Companies Act, 2013. This provision clearly lays down the requirements for the
incorporation of the company. The details of the document are as follows:

 Memorandum of Association – It is the constitution of the Company. It is to


be signed by a minimum of 7 persons for a public company and by 2 persons
in case of a private company. This document must be duly stamped.
 Article of Association – This is the document filed along with the
Memorandum of association. It is signed by all those persons who have
signed the memorandum of Association.

 List of Directors – A list of Directors with their names, address and


occupation is to be prepared and filed with the Registrar of Company.

 Written Consent of Directors – A written consent of the directors that they


have agreed to act as directors has to be filed with the Registrar along with a
written undertaking to the effect that they will take qualification shares and
will pay for them.

 Address of the Registered office – It is also customary to file the notice of the
address of the company’s registered office at the time of incorporation. It is
to be given within 30 days after the date of incorporation.

 Statutory Declaration – A statutory declaration by any advocate of the


Supreme Court or of a High court, or a practicing C.A in India, who engages
in the company formation or by a person indicated in the articles as director,
managing director, secretary or manager of the company, mentioning that the
requisites of the Act and the rules there under have been compiled with.
It is to be filed with ROC.
When the required documents have been filed with the Registrar along with
the prescribed fee, the Registrar scrutinizes the documents. If Registrar is
satisfied, the name of the company is entered in the register. Then, the
Registrar issues a certificate known as Certificate of Incorporation

3. Raising of Capital
A company is formally floated for the raising of capital after it has been
registered and the certificate of incorporation has been issued. The company
thereafter raises the capital required for the commencement of the business.

In the case of a private company, the issuance of shares to the public is


prohibited, and thus, the capital has to be raised from friends, relatives or any
other sort of private arrangement.
In the case of public company, capital can be raised by issuance of shares and
debentures to the public at large.

4. Commencement of Business
As soon as a private company gets the certificate of incorporation, it can
commence its business.
A public company can commence its business only after getting the certificated
of commencement of business. After the company gets certificate of
incorporation, a public company issues a prospectus for inviting the public to
subscribe to its share capital. It fixes minimum subscription. Then it is required
to sell the minimum no. of shares mentioned in the prospectus.

After completing the sale of required no. of shares a certificate is sent to the
Registrar along with a letter from the bank stating that all the money is
received.
The Registrar then scrutinises the documents. If all the legal formalities are
done, then the registrar issues a certificate known as ‘certificate of
commencement of business’. This is conclusive evidence for the
commencement of business for the public company.

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