Company Formation. 1. Promotion 2. Incorporation 3. Capital Subscription 4. Commencement of business

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Brenda Ramsey
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1 Company Formation 1. Promotion 2. Incorporation 3. Capital Subscription 4. Commencement of business

2 Formation of Company In the formation of public company having share capital, mainly four stages are involved. Those are; 1. Promotion of company 2. Incorporation 3. Capital Subscription 4. Commencement of business To form private company and public company not having any share capital, first two stages are sufficient because, a private limited company can start its business immediately after securing the certificate of incorporation from Registrar of companies.

Commencement of business To form private company and public company not having any share capital, first two stages

3 Promotion of Company The person or persons who undertakes responsibility to bring the company into existence are called as Promoters. Promotion involves discovery of the specific business opportunity. According to Justice Bowen, The term promotion is a term, not of law, but of business, usefully summing up in a single word a number of business operations familiar to commercial world, by which a company is generally brought into existence.

According to Justice Bowen, The term promotion is a term, not of law, but of business, usefully summing up in

4 Promotion of Company So in simple words we can put promotion as, The different steps which are taken to persuade a number of persons to come together for the achievement of a common objective through the company form of organisation. From the above discussion, following steps in promotion are ascertain: 1. Discovery of an Idea 2. Detailed Investigation 3. Assembling 4. Financing the Proposition

through the company form of organisation.

5 Incorporation This is second stage in formation of company. After taking all preliminary actions for registration, an application along with necessary documents, stamp duty, filing fees etc. has to be made to the Registrar for issue of certificate of incorporation. The Registrar will scrutinize the documents and if satisfied will enter the name of the company in the register and will issue the company certificate called Certificate of Incorporation. As, by this certificate the company came into existence as a separate legal entity, this certificate is also called birth certificate of company.

has to be made to the Registrar for issue of certificate of incorporation.

6 Incorporation To get Certificate of Incorporation, promoters have to submit following documents to Registrar. 1. The Memorandum of Association to which at least 7 persons have subscribed, their names and each one of them has taken at least one share. 2. The Articles of Association similarly signed except where Table A attached to the Companies Act, 1956, has been adopted as the Company s Articles. 3. The address of the registered office of the company.

7 Incorporation 4. A list of directors with their names, addresses and occupations. 5. Consent in writing of the directors to act as directors. 6. An undertaking of directors to take and pay for qualification shares. 7. A statutory declaration by an advocate or an attorney or chartered accountant practicing in India.

8 Capital Subscription In this stage, company has to make arrangements for obtaining the necessary capital for company. For this purpose board meeting has to be convey immediately after getting Certificate of Incorporation to deal with following. 1.Appointment or confirmation of the appointment of secretary. 2.Adoption of preliminary contracts. 3.Appointment of bankers, brokers, solicitors, auditors etc. 4.Adoption of draft prospectus. 5.Listing shares on Stock Exchange. 6.Adoption of underwriting contracts.

1.Appointment or confirmation of the appointment of secretary. 2.Adoption of preliminary contracts. 3.

9 Commencement of Business To obtain this certificate from Registrar of companies, following conditions must be fulfilled. 1. A prospectus must be filed with Registrar of companies. 2. The number of shares allotted is not less than the minimum subscription mentioned in the prospectus. 3. The directors have taken up and paid for their qualification shares. 4. The declaration that no money is liable to become refundable to applicants for shares. 5. A declaration by one of the directors or the secretary to the effect that all the conditions regarding commencement of the business have been compiled with.

The number of shares allotted is not less than the minimum subscription mentioned in the prospectus. 3.

10 Minimum Subscription The term refers to minimum amount which in the opinion of the directors or signatories to the memorandum, is required to commence the business. The main purpose of this amount is to ensure that the company starts business with adequate capital. The amount of minimum subscription must be stated in Articles of Association.

The main purpose of this amount is to ensure that the company starts business with

11 Minimum Subscription The amount must be sufficient to provide for; 1. Purchase price of any property bought or to be bought. 2. Preliminary expenses & commission payable by company. 3. The repayment of sums borrowed to provide for the foregoing. 4. Working capital 5. Any other expenditure

Preliminary expenses & commission payable by company. 3.

12 Declaration of Compliance After allotting shares for an amount not less than minimum subscription specified in prospectus and complying with the requirements of Section 149 of the Companies Act, the secretary or one of the directors has to submit declaration to the Registrar stating that all the requirements of Section 149 have been compiled. However, there is no need for such a declaration in the case of a private company or company limited by guarantee.

directors has to submit declaration to the Registrar stating that all the requirements of Section 149 have been

13 Specimen Form of Declaration No. of Company The Companies Act, 1956 Filling Fee Rs.5 Declaration of compliance with the provisions of Section 149(1)(a), (b) & (c) of the Companies Act, 1956 Pursuant to Section 149 (1) (d) (To be used by a Company which issued a prospectus on or with reference to its formation.) Name of company. Limited Presented by... I..of being a Director/the Secretary of Limited do solemnly and sincerely declare: 1] That the amount of the share capital of the Company offered to the public for subscription. 2] That the amount stated in the Prospectus as the minimum amount which, in the opinion of the Board of Directors, must be raised by the issue of share capital in order to provide for the matters specified in clause 5 of Schedule II of the Companies Act, 1956, is Rs..

with reference to its formation.) Name of company. Limited Presented by... I.

14 Specimen Form of Declaration 3] That shares held subject to the payment of the whole amount thereof in cash have been allotted to the amount of Rs 4] That every Director of the company has paid to the Company on each of the shares taken or contracted to be taken by him, and for which he is liable to pay in proportion equal to the amount payable on application and allotment on the shares offered for public subscription. 5] That no money is, or may become, liable to be repaid to applicants for any shares which have been offered by public subscription by reason of any failure to apply for, or to obtain, permission for the shares to be dealt in on any recognised Stock Exchange. 6] The statement in paragraphs above are true to my knowledge and those in the remaining paragraphs are true to the best of my information and belief. Dated the Day of 19.. Signature Designation: Directors/Secretary Note: Under Section 149, as amended in 1998, the declaration of compliance can also be signed by a secretary in whole practice where the company has not appointed a secretary.

15 Certificate of Commencement After receiving the declaration of compliance with the provision of Sec. 149 from the secretary or directors along with the required filing fees, Registrar will issue the Certificate of Commencement of Business if he satisfied. From the date of this certificate, company is entitled to commence its business and also empowered to exercise its borrowing powers.

issue the Certificate of Commencement of Business if he satisfied.

16 Certificate of Commencement of Business I hereby certify that..ltd. Of which was incorporated under the Companies Act, 1956, on the day of.19.and which has this day filed a statutory declaration in the prescribed form that the conditions of Section 149 have been complied with, is entitled to commence business. Given under my hand at.. This day of.. One thousand nine hundred and.. Registrar of Companies (Seal of the Registrar) (State)

17 Duties of Secretary in Formation of Company While looking at all four steps of formation of company. It is clearly observed that at every stage secretary has to perform certain task. For better understanding of the point. Let us break up duties of Secretary in to two parts. 1. Duties before incorporation: 2. Duties after incorporation

It is clearly observed that at every stage secretary has to perform certain task.

18 Duties of Secretary in Formation of Company 1. Duties before incorporation: Helping promoters in investigating proposed venture. Securing opinion of the experts if required. To attain all preliminary meetings, keep record of proceedings. Helping promoters to drawing up financial plan. To secure approval of the Registrar. To help promoters in the preparation of preliminary contracts. To follow guidelines issued by SEBI. To collect the certificate of Incorporation from Registrar.

Securing opinion of the experts if required. To attain all preliminary meetings, keep record of proceedings.

19 Duties of Secretary in Formation of Company 2. Duties after incorporation: As to get certificate of incorporation is just like half of the work is done. Secretary has to perform following duties after incorporation stage. Some of them listed below: To prepare draft of Prospectus. To make himself thoroughly conversant with the contents of Memorandum of Association & Articles of Association. To call first board meeting for getting approval of draft prospectus, preliminary contracts.

Secretary has to perform following duties after incorporation stage.

20 Duties of Secretary in Formation of Company To arrange for the listing of securities of the company. To arrange for the bankers to receive the application money from the intending investors. To issue letters of allotment/regret to applicants as per the decision of the board. To collect the certificate of commencement from the Registrar.

To arrange for the bankers to receive the application money from the intending

FORMATION OF JOINT STOCK COMPANY

7 FORMATION OF JOINT STOCK COMPANY You have learnt that formation of a sole proprietorship organisation or a partnership firm does not involve much formalities so much so that even the registration is