What do you mean by a formation of a Company?

A Company comes into existence when a group of people coming together forming an association to exploit the business opportunities by bringing together; men material and management

STEPS INVOLVED :-

→PROMOTION→INCORPORATION (REGISTRATION)→RAISING CAPITAL

PROMOTION :-is a conceiving a business opportunity and taking an initiative to form a company .

Who is a promoter?→People who think of forming a company and take necessary steps in its formation are known as ‘promoters’ or 'company promoters’.→the person who conceives an idea is ‘company promoter’

Functions of a Promoter1.Identification of business opportunity2.Feasibility studies→technical feasibility→financial feasibility→Economic feasibility3.Name approval4.Fixing up signatories to the MOA5.Appointment of professionals6.Preparation of necessary document

INCORPORATION STAGE

→A Company is said to be incorporated when it fulfill the Formalities of registration and obtain “CERTIFICATE OF INCORPORATION” By submitting the MOA,AOA and written consent to all directors.

→A copy of registrar letter approving the name of the company.

→Documentary evidence of payment of registration fees.

Raising capital→Entering onto an agreement with underwriters.→Applying to the stock exchange for listing of shares.→Issue of prospectus inviting public to subscribe.→Allotting share

Documents of Company

→Memorandum of Association→Articles of Association→Prospectus

Memorandum of association

• →MOA contains the fundamental rules regarding the constitution and activities of the company.

• →it is the charter of the company.• →lays down the area of operation• →Regulates the external affairs of the

company.

Contents of MOA

• →The name clause• →The register office clause• →The object clause• →The liability clause• →The Association clause

Name clause →A company adopts the name but it shouldn't be identical to the name of existing company.→the name of the company must end with the word limited so all the persons dealing with the company must know that their liability is limited to the extent of their shares.→in case of the private limited company ‘pvt limited’ is used at last.

Registered office clause

Location of the registered

office

Official address for registration

Books and records kept

Object clause

→An important clause→Must be drafted very carefully.→Determines the activity of the company.→Each and very detail of business to be carried out or must be laid down.

Liability clauseLiability of the company is limited to the extent of the shares purchased by them.This clause contains the notice of liability of members of the company. it is essential for the companies in which the liability of members is limited.→in case of company limited by shares→in case of company limited by guarantee.

Capital clause→this clause states that amount of capital with which the company is to be registered. this clause should also state the number and face value of the shares into which the capital of the company is divided.

→the capital with which the company is ‘registered ‘ or ‘authorized’.

Association clause

This clause states that ,the subscribes declare that they desire to be formed into a company and agree to take the shares stated against their names.Each subscriber must sign the memorandum in the presence of at least one witness who shall attest the signature.

Alteration of name clause

Change of Registered office• From one premises to another premises in the

same city, town or village:-By passing a resolution of board of directorsFrom one town or village to another town or

village in the same state1.Special resolution2.Confirmation of regional director-when

jurisdiction of Registrar of Companies is changed.

ALTERATION OF LIABILITY CLAUSE

→The liability of a company cannot be increased unless the member agrees in writing.→From unlimited liabilty,it can be made limited by registration.

ARTICLE OF ASSOCIATION (AOA)

→contains regulations regarding all the internal affairs of the company.→every company has to prepare its own articles.→it cannot be altered. if alteration has to be done special resolution is passed.

The articles of a company must contain the following

restrictions●restrict the right to transfer of shares.●limit the number of members to fifty.●Prohibit any invitation to the public to subscribe for any shares or debentures of the company.

Contents of articles of association

→powers,duties,rights and liabilities of directors.→powers,duties,rights and liabilities of members.→rules for meetings of the company.→borrowings power of the company.→Dividends→Voting powers of members.→Forfeiture of shares.→seal of the company

prospectus• → document which invites public to provide funds to

the company or subscriptions to its share or debentures.

• →Valuable document containing important details about a company.

• →it should be duly signed by the company.

Contents of prospectus→Name of the company→Address of the registered office→Nature and objects of business→Capital structure→History of the company→Outstanding liabilities→Financial information→Consent of managerial personal→Particulars about underwriter,auditors,brokers.

Statement in lieu of prospectus

A public company issue this to the registrar of companies all three days before the allotment of shares.