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Stage in Formation of  A Company

From the time the idea of forming a company is first conceived to the time the company is actually formed and incorporated and commences business, there are four distinct stages, namely:

(a)    Promotion;
(b)    Incorporation;
(c)    Capital Subscription; and
(d)    Commencement of Business.

A private company can commence business immediately after incorporation. That means, only the first two stages are relevant for a private company.

Stages in Formation of a Company

1.    Promotion Stage. According to Grettenberger, promotion means discovery of business opportunities and the subsequent organization of funds, property, management ability to run a business concern for the purpose of making profit there from. The person who undertakes all these activities is a promoter. he originates a scheme for the formation of the company, gets the Memorandum and Articles prepared, and registered and funds the first directors, settles the terms of preliminary contracts and prospectus (if any) and makes arrangement for raising the capital..

2.    Incorporation Stage. For getting the company incorporated, the following documents have to be prepared and filed with the Registrar of Companies:

(i)    Memorandum of Association,
(ii)    Articles of Association,
(iii)    Statement of Nominal Capital,
(iv)    A list of directors with their names in full, addresses and occupation and age,
(v)    Consent of the directors to a act as directors, and
(vi)    Notice of the address of the registered office.

Along with the above document, a statutory declaration has also to be filed. The declaration should state that all the requirements of the law for registration have been duly complied with. The declaration may be made by any of the following persons:

(a)    An advocate of the supreme Court or High Court;
(b)    An attorney or pleader, entitled to appear before a High Court;
(c)    A Chartered Accountant practicing in India and who is engaged in the formation of the company; and
(d)    By and person, who is named in the Articles as Director, Manager or Secretary of the Company.

On filing the above documents and payment of necessary fees, the Registrar, if satisfied that all the legal formalities have been fulfilled, will register the company and issue a certificate of incorporation under his seal. The certificate of incorporation brings the company into existence as a legal person and may be termed as its birth certificate. It is a conclusive proof of the fact that the company is duly registered and all the requirements of law have been complied with.

After getting the Certificate of Incorporation, a private company can start business operations.

3.    Capital Subscription Stage. A private company or a public company not having share capital can commence business immediately after getting the certificate of incorporation. But a public company having a share capital has of pass through the capital subscription stage before it can commence the business.

In order to raise capital from the public, a prospectus is t be issued 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 its meeting beggar it could be filed with the Registrar and issued to the public. The Board may decide to get the issue if share capital underwritten to ensure that minimum subscriptions raised.

That application forms for the allotment of shares along with the application money are deposited with he 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. A public company having share capital must obtain a ‘certificate to commence business’ from the Register of Companies before it can commence business. In order to obtain this certificate the company must with the provisions of the Companies Act. When these requirements have been complied with, the Registrar of Companies will issue a trading certificate know as certificate to commence business to the company which is conclusive evidence that the company is entitled to commence business.

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