INCORPORATION OF A COMPANY.pptx

INCORPORATION OF A COMPANY
By IRFAAN MEERA.E

Incorporation of Company
 Incorporation is the first process of giving existence or birth of
company.
 Registration or establishment of company is incorporation.
 Incorporation is creation of a legal person by registration of a
company with existing law.
 Once a company has been legally incorporated, it becomes a distinct
entity from those who invest their capital and labor to run the
company.
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Who is a promoter?
 A promoter is a person who does necessary preliminary work incidental to the
formation of company.
 He conceives the idea of starting a business and takes all the measures required for
bringing the enterprise into existence.
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Formation of a Company
1) Promotion Stage
2) Drafting of Memorandum & Article of Association
3) Incorporation or Registration Stage
4) Certificate of Incorporation
5) Capital Subscription stage
6) Commencement of Business
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1) Promotion Stage
 Promotion is the first stage in the formation of a company.
 The term ‘Promotion’ refers to the aggregate of activities designed to bring an enterprise to
operate a business
 According to C.W Grestembeg, “Promotion may be defined as the discovery of business
opportunities and the subsequent organisation of funds, property and managerial ability into a
business concern for the purpose of making profits.
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1) Promotion Stage
 Promotion is the first stage in the formation of a company.
 The term ‘Promotion’ refers to the aggregate of activities designed to bring an enterprise to
operate a business
 According to C.W Grestembeg, “Promotion may be defined as the discovery of business
opportunities and the subsequent organisation of funds, property and managerial ability into a
business concern for the purpose of making profits.
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1) Promotion Stage
1. Preliminary Contract or Pre-Incorporation contract
 For the formation of the company, the promoters are required into enter into various contract with
third parties e.g. purchasing some property or hiring the services of professions like lawyers,
technicians etc.
 The promoters become personally liable for all the contracts entered into by them.
 After the incorporation of the company, such contracts are not binding on the company, because
the company obtains its legal entity status only after its incorporation.
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1) Promotion Stage
2. Promotion Process
 The process of business promotion begins with conceiving the idea and ends when that idea
is translated into action i.e., commencement or existence of business.
 It comes into existence as a result of the efforts of an individual or group of people or an
institution.
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1) Promotion Stage
 Discovery of Business opportunities
 Detailed investigation
 Assembling
 Financing the promotion
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1) Promotion Stage
 Discovery of Business opportunities
The idea of starting the business enterprise is conceived by the promoter. The idea
conceived should applicable and feasible.
 Detailed investigation
The promoter should know the capital requirement, location, size, demand of the
product in the market and the profitable prices of the product
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1) Promotion Stage
 Assembling
Assembling is getting the support and consent of some other peersons to act as
directors or founder, arranging suitable site for the company and arrangement of patents
 Financing the promotion
The promoter also prepares prospectus which is a written invitation to the public
to subscribe for the paid-up capital.
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2) Drafting of MOA & AOA
Memorandum of Association
 It is one of the most important documents required by company for formation and to get
registration with registrar.
 It contains all information regarding the company including name of the company,
registered office, company capital and also liabilities of the members of the company
Article of Association
 Article of Association comprised of rules and regulation that govern the company’s
internal affairs
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 Incorporation or registration is the third stage in the formation of a company.
 It is the registration that brings a company into existence. A company is properly
constituted only when it is duly registered under the Act and a certificate of incorporation
has been obtained from the Registrar of Companies
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In order to get a company registered or incorporated, the following procedures are to be
adopted.
Mode of incorporation
A company may be formed for any lawful purpose by,
 Any 7 or more persons (2 in case of private) associated for any lawful purpose may form an
incorporated company with or without limited liability.
 They shall subscribe their names to memorandum and also comply with all formalities with
respect of registration.
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Documents to be filed with the registrar to get Certificate of Incorporation
The following are the documents to be filed with the registrar to get the Certificate of
Incorporation of company:
1) MOA: It is to be signed by a minimum of 7 persons for a public company and by 2 in case
of private company. It must be properly stamped.
2) AOA: It is to be signed by all those who have signed MOA( Public company limited by
shares need not have its own AOA.
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3) List of Directors
A list of directors with their names, address and occupation is to be prepared and filed with the
Registrar of Companies
4)Written consent by directors
A written consent of the directors that they have agreed to act as directors along with a written
evidence undertaking to take qualification shares and will pay for them.
(Qualification shares means minimum no. of shares required to become the director of a
company)
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5) Notice of the address of the registered office
It is also compulsory to file the notice of the address of the company’s registered office at the
time of incorporation. It is to be given within 30 days after the date of incorporation.
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5) Statutory declaration
A declaration stating all the requirements and formalities relating to registration have been
compiled with. Such declaration shall be signed by any one persons such as
￮ Advocate of Supreme Court
￮ An Attorney
￮ Secretary or Chartered Accountant
￮ A person named as Director or Manager or Secretary in AOA
When the required documents have been filed with the registrar along with the prescribed fee, the
Registrar scrutinizes the documents. If the registrar is satisfied, the name of the company is entered
in the Register and he issues a Certificate known as Certificate of Incorporation.
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 The registrar shall satisfy himself that all the
statutory requirements regarding registration
have been duly compiled with and issue a
certificate called ‘Certificate of Incorporation’
i.e., “Formation of Company”.
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 This document is the birth certificate of the company and in the proof of the existence of the
company.
 After getting certificate of incorporation, the company cannot cease to existence unless it is
dissolved by order of court.
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5) Capital Subscription Stage
 A private company or a public company not having share capital can commence business
immediately on it’s incorporation.
 ‘Capital Subscription stage’ and ‘Commencement of Business stage’ are relevant only in case of
a public company having a share capital. Such a company has to pass through these additional
two stages before commencement of business.
 Under Capital subscription stage, it is the duty for the company to obtain necessary capital for
the company.
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1. Board Meeting
As soon as after the incorporation, a meeting of the Board of Directors is convened to
deal with the following business.
 Appointment of the Secretary. In most cases the appointment of pro-tem secretary (who is
appointed at the promotion stage) is confirmed.
 Appointment of bankers, auditors, solicitors and brokers etc.
 Adoption of draft ‘prospectus’ or ‘statement in lieu of prospectus’.
 Adoption of underwriting contract, if any.
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 Pro-tem secretary : The first secretary of the company is appointed by promoters during the
promotion stage. Since the company does not come into existence, such a secretary is called the
pro-tem or provisional secretary i.e Secretary for time being.
 A prospectus is defined as a legal document describing a company’s securities that have been put
on sale. The prospectus generally discloses the company’s operations along with the purpose of
the securities being offered
 The Statement in Lieu of Prospectus is a document filed with the Registrar of the Companies (
ROC ) when the company has not issued prospectus to the public for inviting them to subscribe
for shares
 An underwriter is any party that evaluates and assumes another party's risk for a fee, which often
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2. Permission from Controller of issue
 The company will now proceed to obtain the permission of the Controller of Capital Issue, New
Delhi, under the Capital Issue Control Act, 1947 if a public offer exceeds Rs. one crore.
 However, it does not apply to a private company, a banking company, an insurance company,
and a government company provided it does not make an issue of securities to the general
Public.
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3. File a copy with the registrar
After the above formalities have been completed, the directors of the company file a copy of the
‘prospectus’ with the Registrar and invite public to subscribe to the shares of the company by
putting the ‘prospectus’ in circulation.
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4. Resolution of Allotment
Application for shares are received from the public through the company’s bankers and if the
subscribed capital is at least equal to the minimum subscription amount as disclosed in the
prospectus, and other conditions of a valid allotment are fulfilled, the directors of the company pass
a formal resolution of allotment.
Minimum subscription refers to the minimum amount which a company should raise at the time of
issuing capital.
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4. Resolution of Allotment
Application for shares are received from the public through the company’s bankers and if the
subscribed capital is at least equal to the minimum subscription amount as disclosed in the
prospectus, and other conditions of a valid allotment are fulfilled, the directors of the company pass
a formal resolution of allotment.
5. Issue of share certificate to allottee
Allotment letters are then posted, return of allotment is filed with the Registrar and share
certificates are issued to the allottees in exchange of the allotment letters.
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6. In case of less than minimum subscription
If the subscribed capital is less than the minimum subscription or the company could not obtain the
minimum subscription within 120 days of the issue of prospectus, all money will be refunded and
no allotment can be made.
7. Statement in lieu of Prospectus
It may be noted that a public company having a share capital, but not issuing a ‘prospectus’ has to
file with the Registrar ‘a Statement in lieu of Prospectus’ at least three days before the directors
proceed to pass the first allotment resolution.
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6)Commencement of Business
After getting the certificate of incorporation, a private company can start its business. A public
company can start its business only after getting a’ certificate of commencement of business’.
￮ (i) A public company issues a prospectus of inviting the public to subscribe to its share
capital,
￮ (ii) A minimum subscription is fixed, and
￮ (iii) The company is required to sell a minimum number of shares mentioned in the
prospectus.
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6)Commencement of Business
￮ After making the sale of the required number of shares a certificate is sent to the Registrar
stating this fact, along-with a letter from the banks, that it has received application money for
such shares.
￮ The Registrar scrutinizes the documents. If he is satisfied, then issues a certificate known as
Certificate of Commencement of Business. This is the conclusive evidence of the
commencement of the business.
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Certificate of Commencement of Business
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INCORPORATION OF A COMPANY.pptx

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