Company Formation

Essential Steps for Formation a Company

  1. The Memo and the Articles must be prepared. These two documents must be filed when application is made for the registration and incorporation of the company. The companies Act lays down rules regarding the preparation of the memorandum.
  • If it is proposed to have a paid up capital or more than Rs.3 crores, sanction of the Central Government must be obtained under the Capital Issues (control) Act, 1956. Formerly, sanction was required up to Rs 1 crore or more. The exemption limit was raised to Rs 3 crores by an order of the Central Government on 31st March, 1978.  
  • If the company formed intends to participate in an industry which is included in the schedule annexed to the Industries Act, 1951, a license must be obtained under that Act.
  • The Company must be registered in accordance with the provisions of the companies Act, 1956 and the certificate of Incorporation must be obtained.
  • In the case of a public company, the following further steps are required to be taken before it can commence business.
  • The prospectus or the statement in lieu of prospectus must be issued and registered with the Registrar.
  • The minimum subscription must be raised and thereafter the allotment of shares must be made.
  • The certificate for the Commencement of Business must be obtained from the Registrar.

Procedure of Registration and Incorporation

For the registration of a company, the following documents together with the necessary fees, must be submitted to the Registrar of companies of the state in which the registered office of the company will be situated. – sec.33 (law)

  1. The Memorandum of Association, prepared in accordance with the provisions of the Companies Act, and signed by at least 7 persons in the case of public companies and 2 persons in the case of private companies.
  • The Articles of Association, in case of unlimited companies, companies limited by guarantee and private companies limited by shares.
  • A declaration by any of the following persons, stating that all the requirements of the Act have  been complied with an advocate, an attorney, a pleader, a chartered accountant, or a person named in the articles as director, manager or secretary of the company.
  • A duly signed list of persons have consented to be directors of the company, their consent in writing and the signed agreement with every such director to take the number of shares required to qualify as director. These are not required in the case of private companies and companies not having a share capital.
  • The Registration fees of a Company are fixed on a graduated scale on the amount of nominal capital or the number of members. There is also a filing fee per document.

The Certificate of Incorporation

The certificate issued by the Registrar after a company is registered is called the Certificate of Incorporation.

  1. All the requirements of the act have been complied with any respect of registration and matters precedent and incidental thereto.
  • The association is a company authorized to be registered and duly registered under the Act.
  • The legal existence of the company begins from the date of issue of the certificate.

Promoters

  The term Promoter is not defined in the Act. Promoter is a word which is used to describe the persons who initially plan the formation of a company and bring it into existence.

“A person, who originates a scheme for the formation of the company, has the Memo and the Articles prepared, executed and registered, and finds the first directors, settles the terms of the preliminary contracts and prospectus and makes arrangements for advertising and circulating the prospectus and placing the capital is Promoter.”

Sometimes company promotion is undertaken by promoting companies or syndicates formed for the purpose. The rights and liabilities of such companies or syndicates are the same as those of individual promoters. The directors of such companies and members of such syndicates are personally responsible if any breach of trust or fraud is committed.

Promoter’s Remuneration:

But for any contract a promoter has no right to get any remuneration for the services rendered by him in promoting the company. In practice, however, he takes remuneration for his work. The usual methods of taking remuneration are as follows:

  • Selling to the company at a profit some property purchased by the promoter before he became one
  • Taking a commission on the shares sold
  • Taking a grant of some shares of the company
  • Lump sum from the company

Functions of the Promoter:  

  1. The promoter decides the company’s name and asserts that it will be accepted by the Registrar of companies.
  2. He decides the details of the company’s Memorandum and Articles, the nomination of directors, solicitors, auditors, bankers and the registered office of the company.
  3. He makes arrangements for printing the Memorandum and Articles, the registration of the company and the issue of prospectus.
  4. He is responsible to bring the company into existence.