Legal Procedure of Formation of Company

Stages in Formation of a Company Promotion Stage Incorporation Stage Capital Raising Stage Commencement of Business Stage

Step I: Promotion Stage 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 therefrom. Promotion begins when a promoter discovers an idea regarding some business and ends up with the launching of an enterprise as a going concern. A promoter is one who conceives the idea of a business enterprise. He analyses its prospects and works out a tentative scheme of organization. ‘A promoter is a businessman who gives birth to a company after securing knowledge of the business world.’

FUNCTIONS OF PROMOTERS Promoter conceives an idea of starting a business for making profit. His experience, knowledge and judgement enable him to see clearly whether the invention has commercial possibilities or not. IDENTIFICATION OF BUSINESS IDEA OR OPPORTUNITY Depending on the nature of the project, the following feasibility studies may be undertaken, with the help of experts like engineers, chartered accountants to examine whether the perceived business opportunity can be profitably exploited. The three studies are- Technical Feasibility, Financial Feasibility & Economic Feasibility. FEASIBILITY STUDY OR DETAILED INVESTIGATION The promoters have to select a name for the company and submit the application to the Registrar of Companies for the state in which the registered office of the company is to be situated. The proposed name should not be misleading, resembles the name of an existing company or should not be undesirable. The promoter can give three names in order of their priority in the given application to the Registrar of Companies. COMPANY’S NAME APPROVAL

FUNCTIONS OF PROMOTERS Promoters have to decide the members who will be signing the Memorandum of Association of the proposed company. Usually these are the directors of the company who give written consent to act as a directors and take up the qualification shares in the company FIXING UP SIGNATORIES TO THE MEMORANDUM OF ASSOCIATION Certain professionals such as merchant bankers, auditors etc. are appointed by the promoters to assist them in the preparation of necessary documents which are required to be filed with the Registrar of Companies. APPOINTMENT OF PROFESSIONALS The promoter takes up steps to get 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 and Article of Association. PREPARATION OF NECESSARY DOCUMENTS

STEP II: INCORPORATION OF A COMPANY The following documents are required to be filed with the Registrar of Companies for the incorporation of a joint stock company: 1. Memorandum of Association 2. Articles of Association 3. List of Directors 4. Written consent of Directors 5. Declaration Regarding Qualification of shares 6. Notice of Registered Office 7. Statutory Declaration

STEP II: INCORPORATION OF A COMPANY Along with the above documents, the necessary stamp duty, registration fee and filing fees are to be deposited with the Registrar. If all the document are found to be correct and in order, the Registrar will enter the name of the company in the register of companies and will issue a certificate known as Certificate of Incorporation. The Certificate of Incorporation bears the serial number, date of incorporation and the signature and seal of the Registrar of Companies. It is conclusive proof that all legal formalities required for incorporation of a company have been duly fulfilled.

STAGE III: CAPITAL RAISING STAGE A public company can raise the required funds from public by means of issue of shares and debentures.. For doing the same, it has to issue prospectus which is an invitation to the public to subscribe to the capital of the company and undergo various other formalities. Following steps are required for raising funs from public: 1. SEBI Approval for Raising Capital 2. Filing of Prospectus 3. Appointment of Bankers, Brokers and underwriters 4.Minimum Subscription 5. Application to stock exchange 6. Allotment of Shares

STAGE IV: COMMENCEMENT OF BUSINESS A private company can commence business immediately after incorporation but a public company having share capital ha s to comply with some formalities before it can commence business. First it must complete all formalities concerned with the raising of capital. Second, it should allot shares and apply to the Registrar of Companies for the issue of Certificate of Commencement of Business. In this context few declarations have to be made: i) a declaration that shares payable in cash have been subscribed for and allotted up to the minimum subscription mentioned in the prospectus. Ii) a declaration that every director has paid in cash, the application and allotment money on his shares in the same proportion as others. Iii) a declaration that no money is payable or liable to become payable to the applicants because of the failure of the company to either apply for or obtain permission to deal in its securities. Iv) a statutory declaration that the above requirements have been complied with , The declaration can be signed by the Director or Secretary of the Company.