COMPANY - FORMATION

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 CONTENTS

Company Formation
• Stages

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 COMPANY FORMATION

1
• PROMOTION STAGE

2
• INCORPORATION STAGE

3
• RAISING OF CAPITAL STAGE

4
• COMMENCEMENT OF BUSINESS

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 1- PROMOTION STAGE
• Promotion is the process of organizing and
planning the finances of a business
enterprise.
• It is the discovery of business opportunities
and subsequent organisation of funds,
property and managerial ability into a
business concern for the purpose of earning
profit.

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 Promoter
U/s 2(69 of the Companies Act 2013, Promoter
means a person:
a) Who has been named as such in a prospectus or
b) Is identified by the company in the annual
return
c) Who has control over the affairs of the company,
directly or indirectly , whether as a shareholder,
director or otherwise
d) In accordance with whose advice, directions or
instructions the board of directors of the
company is accustomed to act.
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
 FUNCTIONS OF A PROMOTER
1. Discovery of idea
2. Detailed investigation
3. Assembling of resources
4. Preparing preliminary documents
5. Entering into preliminary contracts
6. Naming the company
7. Appointment of bankers, brokers, solicitors,
underwriters

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 RIGHTS OF PROMOTERS
• 1. Right to receive preliminary expenses
• 2. Right to receive remuneration for their
services
• 3. Right to receive the proportionate
money from co-promoters.

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 LIABILITY OF PROMOTERS
1. To disclose the liability and pay the secret
profits if promoters have earned
2. Liability is upto the completion of contracts
3. Liability on statutory mistakes or fraud in the
prospectus
4. The promoters property become liable for
payment even after his death

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 Types of promoters
Based on the nature of their operation the
promoters may be classified as follows:
a) Professional promoters
b) Financial promoters
c) Technical promoters
d) Entrepreneurial promoters
e) Specialized institutions
f) Government

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 PROCESS OF PROMOTION

1
•DISCOVERY OF BUSINESS IDEA

2
•INVESTIGATION & VERIFICATION

3
•ASSEMBLING

4
•FINANCING THE PROPOSITION
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
 2 - INCORPORATION STAGE
• This is also called as registration stage
• Any 7 or more persons ( Public company), 2 or
more (Private company) and 1 person ( OPC)
may, for an incorporated company for a lawful
purpose by subscribing their names to the
MOA and complying with other requirements
in respect of registration.
• Such a company may be- Limited by share,
Limited by guarantee or Unlimited company
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
CONDITIONS
• The persons who subscribe to the MOA should not
be an minor, an undischarged insolvent, a lunatic,
an alien enemy or a person disqualified by law.
PROCEDURE
• 1. DIN- Directors Identification Number , has to be
obtained
• 2. Digital Signatures of the Promoters
• 3. Both DIN and Digital signatures should be
registered with MCA- Ministry of Corporate Affairs
Portal
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
• Further process :

• APPROVAL OF NAME
1

• FILING OF DOCUMENTS
2

• PAYMENT OF FILING & REGISTRATION

3 FEES

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
1. APPROVAL OF NAME:
• Availability of Name- Promoters to select at least 6 alternative names in
order of preference. (the service of ‘Check Company Name’ under
homepage of MCA (Ministry of Corporate Affairs- www.mca.gov.in can
be used to check name duplication)
• Applicant will get SRN- Service Request Number which can be used to
trace position about approval of name.
• Out of the 6 names , one may be approved. It should not be against
public policy
• If key words or coined words are used, its significance should be
stated. It should not be against public policy
• Registrar of Companies should inform about approval/rejection of name
within 7 days.
• Once name is approved it is kept reserved for 60 days. If application for
incorporation is not submitted within 60 days, name can be allotted to
other applicant.
• Once approved the promoters get it registered. The Registrar of
Companies assigns a CIN Number (corporate identity number)
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
 CIN
• CIN Number is a unique 21 digit alphanumeric
number provided to all One Person Company,
Private Limited Company, Limited Company,
Producer Company etc registered in India.
• The CIN stands for CORPORATE IDENTITY
NUMBER, which is used to track all the aspects of
the company.
• The CIN Number reveals the identity and basic
information of the company.
• The number also helps in finding the authenticity
of the business.
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
2. FILING OF DOCUMENTS
a) Memorandum of Association (MOA)- it defines the objectives of the company
b) Articles of Association (AOA)- Contains rules & regulations regarding internal
management of the company
c) Declaration
d) Affidavit- statutory declaration that all legal requirements of the Companies Act
have been complied with.
e) Address of registered office of the company
f) Particulars of Subscribers
g) Particulars of First Directors
h) Power of Attorney
i) Consent of Directors
j) Particulars of directors along with DIN –Directors Identification Number)
k) Filing of Agreement
l) Notice of Registered address
m) Proof of payment of fees
n) Statutory declaration of compliance, copy of name approval letter received from
Registrar of companies
MUST BE DULY STAMPED, SIGNED AND WITNESSED
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
3. PAYMENT OF FILING & REGISTRATION FEES
Requisite fees to be paid and the proof of
payment should be enclosed with the
documents that are submitted to the
Registrar of Companies for seeking
incorporation.
If documents are in order, the Registrar issues
Certificate of Incorporation (This is
considered birth certificate of a Company)
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
 ADVANTAGES OF INCORPORATION

• 1. Independent corporate existence

• 2. Limited liability
• 3. Perpetual succession
• 4. Common seal
• 5. Transferable shares
• 6. Separate property
• 7. Capacity to sue
• 8. Professional management
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU
 DISADVANTAGES OF INCORPORATION

• 1. Lifting of corporate veil

• 2. Expensive
• 3. Company cannot be considered as citizen
• 4. Legal formalities (cannnot sue for or
against)

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 3 – RISING OF CAPITAL STAGE
• Private company -funds are raised from members or through banks and other
sources.
• When company does not issue prospectus a Statement in Lieu of prospectus must
be filed with Registrat of Companies.
• Public company – funds are raised through public subscription to shares.
This involves
– Preparation of prospectus and getting it approved by SEBI
– Filing a copy with Registrar of Companies
– Issue of prospectus to public
– If minimum subscription is received, shares should be allotted as per SEBI
guidelines and return filed with Registrar of Companies
– Permission from stock exchange for listing of shares in the stock exchange to
enable trading.

DR.VASANTHI REENA WILLIAMS, VVIET,

MYSURU
 4 – COMMENCEMENT OF BUSINESS
• Private Company- can start business as soon
as it is registered.
• Public Company- can start business only after
obtaining business commencement certificate
issued by Registrar of Companies.
– Certificate is issued when
• Prospectus has be filed
• Share have been allotted (minimum subscription)
• Directors have purchased minimum qualifying shares
• Declaration by director or company secretary that all
legal requirements have been complied .
DR.VASANTHI REENA WILLIAMS, VVIET,
MYSURU