Introduction

• Formation of a company
• Corporate or Separate Legal Personality
• The Constitution of the Company
• The role of a promoter in incorporation of a
company
• The Management of a Registered Company
• The role of Directors of a company
 Formation of a company
The formation of a company is a lengthy
process. For convenience the whole process of
company formation may be divided into the
following four stages:
1. Promotion Stage
2. Incorporation or Registration Stage
3. Capital Subscription Stage
4. Commencement of Business Stage.
 Stage # 1. Promotion Stage:

• Promotion is the first stage in the formation of

a company. The term ‘Promotion’ refers to the
aggregate of activities designed to bring into
being an enterprise to operate a business. It
presupposes the technical processing of a
commercial proposition with reference to its
potential profitability. The meaning of
promotion and the steps to be taken in
promoting a business are discussed in brief
here.
 Promotion Stage cont’
• Promotion of a company refers to the sum
total of the activities of all those who
participate in the building of the enterprise up
to the organisation of the company and
completion of the plan to exploit the idea. It
begins with the serious consideration given to
the ideas on which the business is to be based.
 Stage # 2. Incorporation or
Registration Stage:
• Incorporation or registration is the second
stage in the formation of a company. It is the
registration that brings a company into
existence. A company is properly constituted
only when it is duly registered under the Act
and a Certificate of Incorporation has been
obtained from the Registrar of Companies.
 Procedure to Get a Company
Registered:

• In order to get a company registered or

incorporated, the following procedure is to be
adopted:
• (A) Preliminary Activities:
• Before a company is incorporated, the promoter
has to take decision regarding the following:

• To decide the name of the company

 (B) Filing of Document with the
Registrar:
• 1. Memorandum of Association
• 2. Articles of Association
• 3.List of directors
• 4. Written consent of directors
• 5. Statutory declaration
 Certificate of Incorporation:

• On the registration of memorandum and other

documents, the Registrar will issue a
certificate known as the Certificate of
Incorporation certifying under his hand that
the company is incorporated and, in the case
of a limited company that the company is
limited.
 Effects of Incorporation:

• The certificate of incorporation is conclusive

evidence of the fact that:
• (i) The company is properly incorporated and
duly registered;
• (ii) The terms of the Memorandum and
Articles are within the law;
 Effects of Incorporation cont’

• (iii) All requirements of the Act in respect of

registration have been complied with;
• (iv) A private company can start its business
after getting the certificate of incorporation;
and
• (v) With the issue of certificate, the company
takes birth with a separate legal entity.
Stage # 3. Capital Subscription Stage:

• A private company or a public company not

having share capital can commence business
immediately on its incorporation. As such
‘capital subscription stage’ and
‘commencement of business stage’ are
relevant only in the case of a public company
having a share capital. Such a company has to
pass through these additional two stages
before it can commence business.
 Capital Subscription Stage:

• Under the capital subscription stage comes the

task of obtaining the necessary capital for the
company.
• For this purpose, soon after the incorporation, a
meeting of the Board of Directors is convened to
deal with the following business:
• 1. Appointment of the Secretary. In most cases the
appointment of pre-tem secretary (who is
appointed at the promotion stage) is confirmed.
 Capital Subscription Stage:

• 2. Appointment of bankers, auditors, solicitors

and brokers etc.
• 3. Adoption of draft ‘prospectus’ or ‘statement
in lieu of prospectus’.
• 4. Adoption of underwriting contract, if any.
 Capital Subscription
• Besides the above mentioned business, the
Board also decides as to whether:
• (i) a public offer for capital subscription is to be
made, and
• (ii) Listing of shares at a stock exchange is to be
secured.
• After the above formalities have been completed,
the directors of the company file a copy of the
‘prospectus’ with the Registrar and invite
 Shares
• Public to subscribe to the shares of the company
by putting the ‘prospectus’ in circulation.
• Application for shares are received from the public
through the company’s bankers and if the
subscribed capital is at least equal to the
minimum subscription amount as disclosed in the
prospectus, and other conditions of a valid
allotment are fulfilled, the directors of the
company pass a formal resolution of allotment.
 Shares
• Allotment letters are then posted, return of
allotment is filed with the Registrar and share
certificates are issued to the allottees in
exchange of the allotment letters. If the
subscribed capital is less than the minimum
subscription or the company could not obtain
the minimum subscription within 120 days of
the issue of prospectus, all money will be
refunded and no allotment can be made.
 Shares
• It may be noted that a public company having
a share capital, but not issuing a ‘prospectus’
has to file with the Registrar ‘a Statement in
lieu of Prospectus’ at least three days before
the directors proceed to pass the first
allotment resolution.
Stage # 4. Commencement of Business
Stage:
• After getting the certificate of incorporation, a
private company can start its business. A
public company can start its business only
after getting a’ certificate of commencement
of business’.
 A public company
• (i) A public company issues a prospectus of
inviting the public to subscribe to its share
capital,
• (ii) A minimum subscription is fixed, and
• (iii) The company is required to sell a
minimum number of shares mentioned in the
prospectus.
 Public company
• After making the sale of the required number of
shares a certificate is sent to the Registrar stating
this fact, along-with a letter from the banks, that it
has received application money for such shares.
• The Registrar scrutinizes the documents. If he is
satisfied, then issues a certificate known as
Certificate of Commencement of Business. This is
the conclusive evidence of the commencement of
the business.
 Companies which do not issue a
prospectus:
• A company which has not issued a prospectus
must file the following documents with the
Registrar or in other words, cannot commence the
business unless the following formalities are
complied with [Sec. 149 (2)].
• (i) A statement in lieu of prospectus has been filed
with the Registrar.
• (ii) The directors have taken up and paid for the
qualification shares in cash an amount equal to
the amount payable by other subscribers on
application and allotment.
 Commencement of Business

• (iii) A statutory declaration duly verified by any one of

the directors or secretary of the company that the
directors have taken up and paid for the qualification
shares in cash an amount equal to the amount payable
by other subscribers on application and allotment.
• If the above requirements have been complied with,
the Registrar issues a certificate that the company is
entitled to commence business. This certificate of
commencement of business, like the certificate of
incorporation, is conclusive evidence that the
company is is so entitled to commencement of
business