Legal Procedure of Formation

of a Company
Stages in Formation of a Company
• Promotion
• Incorporation
• Capital Subscription
• Commencement of Business
 Company Promotion
• Promotion is the process of exploring,
investigating, planning and organising resources
with a purpose of setting up a business enterprise.
• Promoter is a businessman, who gives birth to a
company after securing knowledge of a business
world.
• Promoter may be an individual, firm, an
association or even a company engaged in
formation of a company
 Functions of Promoters
• Identification of Business Idea
• Feasibility study or detailed Investigation
– Technical Feasibility
– Financial Feasibility
– Economic Feasibility
• Company’s Name Approval
• Fixing up signatories to the Memorandum of
Association
• Appointment of Professionals
• Preparation of Necessary Documents
 Types of Promoters
• Professional Promoters
• Occasional Promoters
• Institutional Promoters
 Legal Requirements of Incorporation of a
Company
• Memorandum of Association
• Articles of Association
• List of Directors
• Written Consent of Directors
• Declaration regarding Qualification Shares
• Notice of Registered Office
• Statutory Declaration
 Memorandum of Association
• It is the charter or constitution of a
company
• It lays down the powers and objects of a
company as well as the scope of
operations of the company beyond which
it cannot go.
 Contents of MOA
• Name Clause
• Registered Office Clause
• Object Clause
• Liability Clause
• Capital Clause
• Subscription or Association Clause
 Articles of Association
• Articles of Association contains the rules and
regulations relating to the management of its
internal affairs.
• They define the rights powers and duties of
the management the mode and form in which
the business of the company is to be carried
on and the manner in which changes in the
internal regulations of the company may be
made time to time.
 Contents of AOA
• The amount of share capital and its division into different
types of shares.
• Procedure of increasing, reducing or altering the share
capital
• Rules and regulations regarding conversion of fully paid
shares into stock.
• Procedure of holding and conducting company meetings
• Rules regarding voting rights of the members.
• Matters relating to appointment, remuneration, powers,
duties and qualifications of Directors, Managers,
Secretary, Auditors etc.
 Contents of AOA
• Interest rates on calls-in-advance and calls-in-arrears. Of
accounts and audit
• Rules regarding use and custody of common seal.
• Rules regarding declaration of dividend and its payment.
• Rules regarding maintenance of accounts and audit.
• Charging of depreciation and creation of reserves etc.
• Method of raising loans.
• Borrowing powers of directors.
• Rules regarding winding up of the company.
 Payment of Stamp Duty

• Along with all the documents, the necessary

stamp duty, registration fees and filing fees
are to be deposited with the Registrar of
Companies
 Certificate of Incorporation

• It is issued by the Registrar of Companies

when all formalities concerned with the
registration of a company have been fulfilled.
• The moment this certificate is issued, the
company acquires a separate legal status.
 Raising of Capital
• SEBI approval for Raising Capital
• Filing of Prospectus
• Appointment of Bankers, Brokers and
Underwriters
• Minimum Subscription
• Application of Stock Exchange
• Allotment of Shares
 Prospectus
• A prospectus is defined as “ any prospectus,
notice, circular, advertisement or other
documents inviting offers from the public for the
subscription or purchase of any shares in or
debentures of a body corporate.
 Purpose of Prospectus
• To inform the public about the new company
• To induce people to invest in the shares and
debentures of the company
• To provide an authentic record of the terms and
conditions on which the public has been invited
to buy the shares and debentures.
• To ensure that the directors accept responsibility
for the statement made in the prospectus.
 Statement in Lieu of Prospectus
• A public Company having share capital may
decide not to approach the public for securing
necessary capital.
• In such a case, it will have to file a statement in
lieu of prospectus with the registrar of
companies.
• It contains information very similar to the
prospectus.
 Commencement of Business
• A private Company can commence business
immediately after incorporation but a public
company having share capital has to comply with
some more formalities before it can commence
its business
 Certificate of Commencement of
Business
• It is issued by the Registrar of Companies to a
public company after its has successfully raised
capital and completed the formalities.
• This certificate entitles the company to start its
business operations.