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Notes on Formation of Company

The formation of a company involves three main steps: promotion, incorporation, and capital subscription. Promotion includes identifying a business opportunity, conducting feasibility studies, and preparing necessary documents, while incorporation involves registering the company and obtaining a certificate of incorporation. Capital subscription allows public companies to raise funds through shares and debentures, requiring SEBI approval and the issuance of a prospectus.

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6 views3 pages

Notes on Formation of Company

The formation of a company involves three main steps: promotion, incorporation, and capital subscription. Promotion includes identifying a business opportunity, conducting feasibility studies, and preparing necessary documents, while incorporation involves registering the company and obtaining a certificate of incorporation. Capital subscription allows public companies to raise funds through shares and debentures, requiring SEBI approval and the issuance of a prospectus.

Uploaded by

ziyanjabir
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We take content rights seriously. If you suspect this is your content, claim it here.
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Formation of a Company:

Formation of a company means bringing a company into existence and starting its
business. The steps involved in the formation of a company are:
i) Promotion
ii) Incorporation
iii) Capital subscription
A private company has to undergo first two steps where as public company has to
undergo all the stages.
i) PROMOTION:
Promotion means conceiving a business opportunity and taking an initiative to
form a company.
Steps in Promotion:

1) Identification of business opportunity: The first and foremost function


of a promoter is to identify a business idea e.g., production of new product
or service
2) Feasibility Studies: After identifying a business opportunity the
promoters undertake detailed studies of technical, financial, economic
feasibility of a business.
3) Name approval: After selecting the name of company the promoters
submit as application to the Registrar of companies for its approval.
4) Fixing up signatories to the memorandum of Association: Promoters
have to decide about the director who will be signing the memorandum of
association.
5) Appointment of Professional: promoters appoint merchant bankers,
auditors etc.
6) Preparation of necessary documents: The promoters prepare certain
legal documents such as memorandum of association, Articles of
association which have to be submitted to the registrar of the companies.

ii) INCORPORATION:
Incorporation means registering of the company as a body corporate under
the companies act 1956 and receiving certificate of incorporation.
Steps for Incorporation:
1) Application for incorporation: Promoters makes an application for the
incorporation of the company to the registrar of companies.
2) Filing of necessary documents: Promoter files the following documents.
a) Memorandum of Association.
b) Articles of Association.
c) Consent of proposed director.
d) Agreement with proposed managing director.
e) Statutory declaration.

3) Payment of Fees: Along with filing of above documents registeration fee


has to be deposited which depends on amount of the authorized capital.
4) Registeration: The registrar verifiers all the document submitted. If he is
satisfied then he enters the name of the company in his Register.
5) Certificate of Incorporation: After entering the name of the company in
the register. The registrar issues a certificate of Incorporation. This is
Called the Birth Certificate of the company.

iii) Capital Subscription:


A public company can raise funds from the public by issuing shares and
debenture. For this it has to issue prospectus and undergo various other
formalities.

Steps required for raising funds from public:


1. SEBI approval: SEBI regulates the capital market of INDIA.A public
company requires to take approval from SEBI.
2. Filing of Prospectus: Prospectus means any documents which invites
offers from the public to purchase shares and debentures of the company.
3. Appointment of bankers, brokers, underwriters: Banker of the
company receive the application money. Brokers encourage public to
apply for the shares ,underwriters are the person who undertake to buy
these shares.
4. Minimum subscription: According to SEBI guidelines minimum
subscription is 90% of the issue amount. If minimum subscription not
received then the allotment cannot be made.
5. Application to stock exchange: It is necessary for a public company to
list their shares in the stock exchange therefore promoters apply in stock
exchange to list company shares.
6. Allotment of shares: Allotment of shares means acceptance of share
applied. Allotment letters are issued to the shareholders, the name and
address is submitted to the registrar.

IMPORTANT DOCUMENTS USED IN THE FORMATION OF COMPANY:


1. Memorandum of association: It is the principal document of a company. No
company can be registered without a memorandum of association and that is
why it is sometimes called a life-giving document.
Contents of Memorandum of Association:
1. Name clause: This clause contains the name of the company.
2. Registered office clause: This clause contains the name of the state in
which the registered office of the company is to be situated.
3. Object clause: it defines main objectives of the company.
4. LIABILITY clause: This clause limits the liability of the members to the
amount unpaid on the shares held by them.
5. Capital clause: this specifies the maximum capital which the company will be
authorized to raise.
. 2. Articles of Association:
The articles of association are the rules for the internal management of the affairs
of a company the articles define the duties, rights and powers of the officers and the
Board of Directors.

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