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
(iv) Commencement of business.
A private company has to undergo only first two steps but a public company has to undergo all the four stages.
<hr />
1. Promotion:
Promotion means conceiving a business opportunity and taking an initiative to form a company.
Step 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 promotors submit an application to the Registrar of companies for its approval.
4. Fixing up signatories to the Memorandum of Association: Promotors 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.
<hr />
2. Incorporation
Incorporation means registration of the company as body corporate under the companies Act 1956 and receiving certificate of Incorporation.
Steps for Incorporation
1. Application for incorporation: Promoters make an application for the incorporation of the company to the Registrar of companies.
2. Filing of necessary documents: Promoters files the following documents:
(i) Memorandum of Association.
(ii) Articles of Association.
(iii) Statement of Authorized Capital
(iv) Consent of proposed director.
(v) Agreement with proposed managing director.
(vi) Statutory declaration.
3. Payment of fees: Along with filing of above documents, registration fee has to be deposited which depends on amount of the authorized capital.
4. Registration: The Registrar verifies 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.
<hr />
III. Capital Subscription:
A public company can raise funds from the public by issuing shares and Debentures. For this it has to issue prospectus and undergo various other formalities:
Step required for raising funds from public:
1. SEBI Approval: SEBI regulates the capital market of India. A public company is required to take approval from SEBI.
2. Filing of Prospectus: Prospectus means any documents which invites offers from the public to purchase share and Debenture of the company.
3. Appointment of bankers, brokers, underwriters: Banker of the company receive the application money. Brokers encourage the public to apply for the shares, underwriters are the person who undertake to buy the shares if these are not subscribed by the public. They receive a commission for underwriting.
4. Minimum subscription: According to the SEBI guide lines minimum subscription is 90% of the issue amount. If minimum subscription is not received then the allotment cannot be made and the application money must be returned to the applicants within 30 days.
5. Application to Stock Exchange: It is necessary for a public company to list their shares in the stock exchange therefore the 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 of the shareholders submitted to the Registrar.
<hr />
IV. COMMENCEMENT OF BUSINESS:
To commence business a public company has to obtain a certificate of commencement of Business. For this the following documents have to be filled with the registrar of companies.
1. A declaration that 90% of the issued amount has been subscribed.
2. A declaration that all directors have paid in cash in respect of allotment of shares made to them.
3. A statutory declaration that the above requirements have been completed and must be signed by the director of company.
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 clauses – This clause contains the name of the company. The proposed name should not be identicator similar to the name of another exiting company.
2. Situation clauses – This clause contains the name of the state in which the registered office of the company is to be situated.
3. Object clause – This clause defines the objective with which the company is formed. A company is not legally entitled to do any business other than that specified in the object clause.
4. Liability Clauses – This clause limits the liability of the members to the amount unpaid on the shares held by them.
5. Capital clause – This clause specifies the maximum capital which the company will be authorized to raise tough the issue of shares called authorized capital.
Gaurav Seth 4 years, 2 months ago
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
(iv) Commencement of business.
A private company has to undergo only first two steps but a public company has to undergo all the four stages.
<hr />1. Promotion:
Promotion means conceiving a business opportunity and taking an initiative to form a company.
Step 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 promotors submit an application to the Registrar of companies for its approval.
4. Fixing up signatories to the Memorandum of Association: Promotors 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.
<hr />2. Incorporation
Incorporation means registration of the company as body corporate under the companies Act 1956 and receiving certificate of Incorporation.
Steps for Incorporation
1. Application for incorporation: Promoters make an application for the incorporation of the company to the Registrar of companies.
2. Filing of necessary documents: Promoters files the following documents:
(i) Memorandum of Association.
(ii) Articles of Association.
(iii) Statement of Authorized Capital
(iv) Consent of proposed director.
(v) Agreement with proposed managing director.
(vi) Statutory declaration.
3. Payment of fees: Along with filing of above documents, registration fee has to be deposited which depends on amount of the authorized capital.
4. Registration: The Registrar verifies 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.
<hr />III. Capital Subscription:
A public company can raise funds from the public by issuing shares and Debentures. For this it has to issue prospectus and undergo various other formalities:
Step required for raising funds from public:
1. SEBI Approval: SEBI regulates the capital market of India. A public company is required to take approval from SEBI.
2. Filing of Prospectus: Prospectus means any documents which invites offers from the public to purchase share and Debenture of the company.
3. Appointment of bankers, brokers, underwriters: Banker of the company receive the application money. Brokers encourage the public to apply for the shares, underwriters are the person who undertake to buy the shares if these are not subscribed by the public. They receive a commission for underwriting.
4. Minimum subscription: According to the SEBI guide lines minimum subscription is 90% of the issue amount. If minimum subscription is not received then the allotment cannot be made and the application money must be returned to the applicants within 30 days.
5. Application to Stock Exchange: It is necessary for a public company to list their shares in the stock exchange therefore the 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 of the shareholders submitted to the Registrar.
<hr />IV. COMMENCEMENT OF BUSINESS:
To commence business a public company has to obtain a certificate of commencement of Business. For this the following documents have to be filled with the registrar of companies.
1. A declaration that 90% of the issued amount has been subscribed.
2. A declaration that all directors have paid in cash in respect of allotment of shares made to them.
3. A statutory declaration that the above requirements have been completed and must be signed by the director of company.
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 clauses – This clause contains the name of the company. The proposed name should not be identicator similar to the name of another exiting company.
2. Situation clauses – This clause contains the name of the state in which the registered office of the company is to be situated.
3. Object clause – This clause defines the objective with which the company is formed. A company is not legally entitled to do any business other than that specified in the object clause.
4. Liability Clauses – This clause limits the liability of the members to the amount unpaid on the shares held by them.
5. Capital clause – This clause specifies the maximum capital which the company will be authorized to raise tough the issue of shares called authorized capital.
1Thank You