Formation and Incorporation of a Company

The formation and incorporation of a company is similar to the birth of a human as it go through various stages gradually. The procedure for incorporation of a company is divided into 4 stages.

  1. Promotion of a Company
  2. Incorporation of a Company
  3. Subscription of a Company
  4. Commencement of the Business

Promotion of the Company-

The very first stage towards formation of a company in India is its Promotion. Promotion is a process wherein a company comes into existence. It is the birth of the company followed by determination of the object and purpose for which it is formed. Promoter is a person who undertakes the formation of a company by investing the initial funds to start a business.

Section 2(69) of the Companies Act, 2013 defines the term promoter as an individual who is  named as a promoter in the prospectus or in the annual returns of the company, who controls the affairs of a company, directly or indirectly, who advises, directs, or instructs the Board of Directors. Therefore, it can said that the promoter is the one who originally comes with the idea of the company, form it and register it.

The following are the documents required for the formation of a company:-

  1. Memorandum of Association- MOA is the constitution of the Company wherein the signatories in case of a public company has been fixed, the object of the company is explained. It contains various clauses such as name of company, registration clause, liability clause, etc.
  2. Articles of Association- AOA is the document filed along with MOA, which contains various rules and regulations of the internal management of Company such as amount of share capital and kinds of share, rights of each kind of shareholders, procedure for making allotment of shares, procedure for issuance of share certificate, transfer of shares, procedure for conducting meetings, procedure for appointing or removing directors of the company etc. The rules mentioned under AOA shall not exceed anything mentioned under MOA as they are subsidiary to the MOA.
  3. Consent of Directors- apart from MOA and AOA, the list of directors regarding their names, occupation and address is mentioned along the their written consent in respect of buying or paying for qualification of shares which is mentioned in the AOA.
  4. Verification and fees payment- MOA, AOA and other such documents are to be digitally signed by any recognized Charted accounted, Company secretary or Advocate. Along with such documents payment of certain amount of fees is required for registration of Companies.  

Incorporation of a Company-

After complying with these formalities, promoters are required to make an application to the Registrar of Companies for the incorporation of the company in the state wherein they want to establish their registered office. As per section 35 of the Act, as soon as the Registrar of Companies gives certificate of registration of company, it becomes conclusive evidence of formation or existence of company.

Subscription of Capital-

Once the certificate of registration is received, a public company issues a prospectus to invite the general public to subscribe into its share capital. It also fixes the minimum the subscription amount in the prospectus. Then, it requires to sell the minimum number of shares mentioned. After, completing the sale of the required number, the certificate is sent to the registrar along with the letter from the bank stating that all the money is received. Then the registrar scrutinizes the documents and all the legal formalities and issue Certificate of Commencement of Business.

Commencement of Business-

A private company, having no subscription of share capital can immediately commence its business just after receiving certification of incorporation. However, a public company can commence its business only after receiving certificate of commencement of business.

In the whole process of formation and incorporation of a company, the promoter plays an important role. It is his duty to comply with all the rules and regulations mentioned under Companies Act. The promoter shall be held personally liable in case of any miss communication or pre-incorporation contract.


The Companies Act, 2013

Company Formation

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