Formation of a Company

CLASS 11
BUSINESS
 NOTES
FORMATION OF A COMPANY
A company is a Association of persons formed for carrying out business
activities and has a legal status independent of its members

Separate legal entity prepectual succession

or
Common seal

Governed by Companies Act, 2013.

The capital is divided into smaller parts called 'shares' which is easily
transferable.

Stages of formation

Promotion
Commencement of business

Incorporation Capital subscription stage

1. Promotion
Conceiving a business idea and taking initiative to form a company.
the person or group of persons involves in this Step are known as
Promoters.

CLASS 11 BUSINESS
 NOTES
FORMATION OF A COMPANY
Functions of a Promoter
1. Identification of Business opportunity (new idea , product or
potential investment)

2. Feasibility studies (Reality and profitability check of idea) (with the

help of specialists like engineers, CA etc.
A) Technical feasibility (technologically possible or not)
B) Financial feasibility (finance arrangement is possible or not)
c) economic feasibility (profitable or not )

3. Name Approval every company has to get its name approved from
the registrar of companies of the state in which the company is to be
situated. so that it does not match with any other company name.
{Name must be suggestive and unique}

4 Fixing up signatories to MOA usually the people signing memorandum

are also the first directors of the company.

5 Appointment of professionals Promoters appoints certain

Professionals like auditors, mercantile banks etc for smooth functioning
and praporation of necessary documents which are submitted to the
registrar.

CLASS 11 BUSINESS
 NOTES
FORMATION OF A COMPANY
6 . Preparation of necessary documents ie.. MOA, AOA & consent of
Directors
MOA - Memorandum of Association
Principal document of a company.
Contains the objectives and powers of the company limits of
operation
It also describes the scope of operation, which can be altered only
according to the provisions made in the companies act.
Also known as Doctrine of outdoor management.

Clauses in MOA
Name clause - company name & known name .
Registered office clause - State Name of HO/Exact Address.
Objects Clause - purpose of company.
Liability clause - defines liabilities of members, which is limited by
amount of unpaid Share amount
Capital Clause - Maximum capital which the company will be
authorised to raise through the issue of shares.
Association Clause - MOA must be signed by at least seven persons
in cause of Public L.T.D and by 2 persons in case of private
company.

Alteration in MOA is possible by passing it in the registrar office

CLASS 11 BUSINESS
 NOTES
FORMATION OF A COMPANY

2. Incorporation
After the completion of 1st stage promoters makes an application for
the incorporation of the company.
Steps
1. Filling necessary document
2. Payment of Fees
3. Registration (enter in the books of registrar)

If the registrar considered everything legal & valid ,he / she will is sue
certificate of incorporation which will allow a legal existence of the
company

3. Capital Subscription
(only in case of public co.)
The company will now have to raise capital from the public by means
of issue of shares and for that the company issue prospectus.

[Prospectus is a document (an article or advertisement)

that invites public to apply for purchase of share or debentures of a
body corporate]

JOIN OUR TELEGRAM CHANNEL ( GAURAV JAIN OFFICIAL )

FREE NOTES/PDF PRACTICE PAPER DAILY UPDATE

CLASS 11 BUSINESS
 NOTES
FORMATION OF A COMPANY
STEPS OF RAISING FUNDS
1. SEBI approval
" is the regulatory authority of stock market in India.
Companies should disclose all the material facts. to SEBI, failure to
so can cancel their registration.

2. filing of Prospectus
- After getting approval from SEBI, the next step is to prepare
prospector or statement in lieu of prospectus. This must be deposited
with the registrar
change Commission

3. Appointment of Bankers, Brokers and Under writers.

BANKER BROKER UNDER WRITERS

which receives the They helps in selling In case the company won't
application money shares.They be able to sell the whole
from public encourage public to lot of his shares to public,
apply for Shares. they will buy the shares on
They charge their behalf to comply
Brokerage for their with
services.

FOLLOW US ON INSTAGRAM
@gaurav_jainofficial

CLASS 11 BUSINESS
 NOTES
FORMATION OF A COMPANY
4. Minimum Subscription
It refers to the minimum amount which company must receive from
its public issue .
A public limited can not make allotment of shares until 90% of the
issued amount is received within 120 days of issue of prospectus.
(Rules of SEBI)
In case of failure, the company has to return the application amount in
next 10 days (130 day)

5. Application to stock Exchange

In order to sell securities to general public, a firm must be listed in
Stock exchange.
It has to apply in any exchange (BSE,NSE) etc. and if the exchange
authorities verify then the name is listed or else allotment will be
void cancelled

6. Allotment of Shares.
Till allotment, the company must not use the amount received on
issue, and it will be kept in a seperate Bank A/c.
In case of over subscription (Application > Available shares)
The company can choose any
Reject excess shares
Adjust amount for later if full amt. is not received
combination of above 2.

CLASS 11 BUSINESS
 NOTES
FORMATION OF A COMPANY
Allotment letters are issued to successful allottes and Return of
allotment ( discussed earlier) is filed with registrar of companies
within 30 days of allotment

4. Commencement of Business
The Company applies to the registrar to issue commencement of
Business, certificate.
After which, "The company can start its business activities from the
date of issue of the certificate

CLASS 11 BUSINESS
 NE SHOT
THE GAURAV JAIN

BEGINNER ADVANCED
FORMATION OF A COMPANY CLASS 11
WHATSAPP CHANNEL FOR NOTES AND IMPORTANT QUESTIONS

7690041256
YE LE BAALAK ... MAUJ KAR

THE GAURAV JAIN 7690041256