FORMATION OF A COMPANY

Formation of a company is a complex activity involving completion of

a lot of legal formalities and procedures. The formation of a company
involves 4 stages:

1. Promotion of a Company
This is the first stage in the formation of a company of a company.
It involves conceiving a business idea and taking an initiative to
form a company. The persons who initiate the particular business
or company are known as promoters. At this stage, the promoters
find out the ways to collect money, investigates business ideas,
arranges for finance and brings together all the required resources
to start a business enterprise.
The process of business promotion begins with the conceiving of
an idea and ends when the idea is translated into action which is
the establishment of the business enterprise and commencement
of the business.

2. Registration or Incorporation Stage

In order to get the company registered, the following important
documents need to be filed with the registrar of companies:

 Memorandum of Association- It is the most important

document as it defines the objectives of company. In MOA,
there is a proper description of the member’s names, address,
signature and seal of the company.
It must be signed by at least 7 persons in case of public
company and 2 persons in case of private company.

 Articles of Association- Articles of Association are the rules

regarding internal management of a company. This document
is signed by all those persons who have signed the MOA.
  Consent of Proposed Directors- It contains the list of directors
and the written consent of each director that they have agreed
to act as directors.

 Agreement- The agreement, if any, which the company

proposes to enter with any individual for appointment as its
managing director is another document which requires to be
submitted to the registrar for getting the company registered
under the act.

 Statutory Declaration- A declaration stating that all the legal

requirements pertaining to registration have been complied
with is to be submitted to the registrar. This statement can be
signed by an advocate of High Court or Supreme Court or by a
Chartered Accountant in full time practice.

After the submission of the required documents along with the

prescribed fee, the registrar will scrutinize the documents. If he
is satisfied, he will issue a certificate known as ‘Certificate of
Incorporation’ which is the evidence of the fact that the
company is incorporated.

3. Raising of Share Capital

In this stage, the promoters of the company will decide the capital
structure of their company because managing any company for
their capital is an important task.
In order to raise capital from the public, a statement in lieu of
prospectus is to be filed with the Registrar of Companies. The
draft prospectus or statement in lieu of prospectus is approved by
the Board of Directors in the meeting. Then, application forms for
the allotment of shares along with the application money are
deposited with the bankers of the company mentioned in the
prospectus. After this the Board of Directors will make allotment
of shares in consultation with the stock exchange and a return as
 to allotment of shares is sent to the Registrar of Companies within
one month of the allotment.
4. Commencement of Business Stage
In order to obtain the ‘Certificate of Commencement’ the
company must comply with the provisions of the Companies Act.
A certificate is sent to the registrar along with a letter from the
bank stating that all the money is received and a declaration that
every director has paid the application money and allotment
money on his shares in cash and in the same proportion as others.
The registrar shall examine these documents. If these are found
satisfactory, a ‘Certificate of Commencement of Business’ will be
issued. With the grant of this certificate the formation of a
company is complete, and the company can legally start doing
business.