Formation of a Company

The procedure or formation of a company may be divided into four stages:

1. Promotion

2. Incorporation

3. Raising of capital

4. Commencement of business

1. Promotion:

It is the first stage in the formation of a company.

In this stage the idea of carrying on a business is conceived by a person or a group of persons called promoters. They make detailed investigation about the workability of the idea, amt of capital required, operating expense etc etc..

Before a company an be formed, there must be some persons who have an intention to form a company and who take the necessary steps to carry that intention into operation. Such persons are called promoters.

The promoter is the person who brings a company into existence.

II. Incorporation

2. Incorporation:

A company is said to be incorporated  when it is registered with the registrar under the companies act. The certificate of incorporation is the birth certificate of the company. A company comes into existence from the date mentioned in the certificate.

Procedure for Registration

The promoter has to first decide the proposed form of company as whether it is to be a public company or a private company.

They may form the company with limited liability , unlimited liability  or limited by guarantee.

They have to decide the name of the company agreeable and desirable to all. For eg if the name proposed is identical with or closely resembles the name of an existing company , it is undesirable.

For getting registration an application has to be made to the registrar.

The application shall be accompanied by the following documents:

1. Memorandum of association

2. Articles of association

3. A statement of nominal capital

4. A notice of address of the registered office of the company.

5. A list of directors and their consent to a act signed by them

6. A declaration that all the requirements of the act have been complied with. Such declaration shall be signed by an advocate of high court or supreme court or a chartered accountant who is engaged in the formation of company

Certificate of Incorporation:

If the registrar is satisfied that all the requirements of the act have been complied with he shall register the company and issue a certificate of incorporation.

Conclusive Proof

Once a company is registered incorporation cannot be challenged subsequently. The certificate of incorporation is a conclusive evidence of the fact that:

1. all the requirements of the act have been complied with.

2. company is duly registered.

3. company came into existence on the date of certificate.

Advantages of Incorporation:

1. Transferability of shares

2. Separate legal entity

3. Perpetual succession

4. Common seal

5. Separate property

6. Capacity to sue

3. Raising of Capital:

After incorporation a company can raise capital by issuing shares. A private company cannot issue shares to public.

In case of public company a copy of prospectus is filed with the registrar and it will be issued to the public. Those who are intended in purchasing share are required to send their application money to company's banker.

On the last date fixed for the receipt of application if the company has received application equal to minimum subscription the directors will start with allotment of shares.

4. Commencement of Business:

A private company may commence its business immediately after incorporation.

But a public company cannot commence business immediately after incorporation but it has to obtain a certificate of commencement from the registrar.