Formation of Company
Formation of a company is a complex activity involving completion of legal
formalities and procedures
Involves three distinct stages, which are:
1. Promotion
2. Incorporation
3. Subscription of capital
Private company as against the public limited company is prohibited to raise
funds from public,
it does not need to Issue a prospectus and complete the formality of minimum
subscription
I. Promotion of company
It involves conceiving a business idea and taking an initiative to form a company
so that practical shape can be given to exploiting the available business
opportunity
It is the first stage in the formation of a company
Promoter
According to Section 69, a promoter means a person
(a) Who has been named as such in a prospectus or is identified by the company
in the annual return referred to in section 92; or
(b) Who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise: or
(c) In accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act. However, it is provided that
nothing in this sub clause shall apply to a person who is acting merely in a
professional capacity.
Functions of promoters
1. Identification of business opportunity: The opportunity may be in respect of producing a
new product or service or making some product available through a different channel or any
other opportunity having an investment potential. Opportunity is then analyzed for its
technical and economic feasibility.
, 2. Feasibility studies: It may not be feasible or profitable to convert all identified
business opportunities into real projects. The promoters, therefore, undertake detailed
feasibility studies.
The following feasibility studies may be undertaken:
(a) Technical feasibility: an idea may be good but technically not possible to
execute. It may be so because the required raw material or technology is not
easily available.
(b) Financial feasibility: Every business activity requires funds. The promoters
have to estimate the fund requirements for the identified business
opportunity If not able to arrange funds, then project needs to be given up.
(c) Economic feasibility: Project is technically viable and financially feasible but
the chance of it being profitable is very little.
3. Name approval
The promoters have to select a name for it and submit, an application to the
registrar of companies of the state in which the registered office of the
company is to be situated, for its approval.
Proposed name is not accepted but some alternate name may be
approved.
Three names in order of their priority are given in the application to the
Registrar of Companies.
4. Fixing up Signatories to the Memorandum of Association:
Promoters have to decide about the members who will be signing the
Memorandum of Association of the proposed company.
People signing memorandum are also the first Directors of the
Company.
Their written consent to act as Directors and to take up the qualification shares
in the company is necessary.
5. Appointment of professionals: Certain professionals such as mercantile bankers, auditors
etc., are appointed by the promoters to assist them in the preparation of necessary documents
which are required to be with the Registrar of Companies.
6. Preparation of necessary documents: The promoter takes up steps to prepare certain legal
documents, which have to be submitted under the law, to the Registrar of the Companies for
getting the company registered. These documents are Memorandum of Association, Articles of
Association and Consent of Directors.
Formation of a company is a complex activity involving completion of legal
formalities and procedures
Involves three distinct stages, which are:
1. Promotion
2. Incorporation
3. Subscription of capital
Private company as against the public limited company is prohibited to raise
funds from public,
it does not need to Issue a prospectus and complete the formality of minimum
subscription
I. Promotion of company
It involves conceiving a business idea and taking an initiative to form a company
so that practical shape can be given to exploiting the available business
opportunity
It is the first stage in the formation of a company
Promoter
According to Section 69, a promoter means a person
(a) Who has been named as such in a prospectus or is identified by the company
in the annual return referred to in section 92; or
(b) Who has control over the affairs of the company, directly or indirectly
whether as a shareholder, director or otherwise: or
(c) In accordance with whose advice, directions or instructions the Board of
Directors of the company is accustomed to act. However, it is provided that
nothing in this sub clause shall apply to a person who is acting merely in a
professional capacity.
Functions of promoters
1. Identification of business opportunity: The opportunity may be in respect of producing a
new product or service or making some product available through a different channel or any
other opportunity having an investment potential. Opportunity is then analyzed for its
technical and economic feasibility.
, 2. Feasibility studies: It may not be feasible or profitable to convert all identified
business opportunities into real projects. The promoters, therefore, undertake detailed
feasibility studies.
The following feasibility studies may be undertaken:
(a) Technical feasibility: an idea may be good but technically not possible to
execute. It may be so because the required raw material or technology is not
easily available.
(b) Financial feasibility: Every business activity requires funds. The promoters
have to estimate the fund requirements for the identified business
opportunity If not able to arrange funds, then project needs to be given up.
(c) Economic feasibility: Project is technically viable and financially feasible but
the chance of it being profitable is very little.
3. Name approval
The promoters have to select a name for it and submit, an application to the
registrar of companies of the state in which the registered office of the
company is to be situated, for its approval.
Proposed name is not accepted but some alternate name may be
approved.
Three names in order of their priority are given in the application to the
Registrar of Companies.
4. Fixing up Signatories to the Memorandum of Association:
Promoters have to decide about the members who will be signing the
Memorandum of Association of the proposed company.
People signing memorandum are also the first Directors of the
Company.
Their written consent to act as Directors and to take up the qualification shares
in the company is necessary.
5. Appointment of professionals: Certain professionals such as mercantile bankers, auditors
etc., are appointed by the promoters to assist them in the preparation of necessary documents
which are required to be with the Registrar of Companies.
6. Preparation of necessary documents: The promoter takes up steps to prepare certain legal
documents, which have to be submitted under the law, to the Registrar of the Companies for
getting the company registered. These documents are Memorandum of Association, Articles of
Association and Consent of Directors.
