8/4/2019 Formation_of_company by Rajat Jhingan

1/14

FORMATION OF A COMPANY

Rajat Jhingan

1By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

2/14

Promotion

Registration or

incorporation

Capital Subscription

Commencement of Business

Before a company is formed, certain preliminary steps are to be taken.

E.g. whether it should be a private company or a public company; what shouldbe its capital etc.

As regards a private company, it needs to go through the firsttwo stages only. As soon it receives the certificate of incorporation,it can commence business. This is so because it cannot invite the public tosubscribe to its shares and must arrange to raise the capital privately.

But Public Company has to go through all of the four stages.

Introduction

2By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

3/14

Promotion

This is the first stage in the formation of a company.It refers to the entire process by which a company is brought into existence. Itstarts with the conceptualization of the birth a company and determination ofthe purpose for which it is to be formed.

What we mean by promoters?

The persons who conceive the company and invest the initialfunds are known as the promoters of the company.

3By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

4/14

Pre-Incorporationor Preliminary Contracts

The promoters of a company usually enter into contract toacquire some property or right for the company, which is yet to

be incorporated. Such contracts are called Pre-Incorporation orPreliminary Contracts.

4By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

5/14

Position of promoters

Pre-Incorporation or Preliminary Contracts

Company not bound by pre-incorporationcontract

Company can not enforce pre-incorporationcontract

Promoters are personally liable

5By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

6/14

Incorporation by Registration

The promoters must make a decision regarding the type ofcompany i.e. a public company or a private company or anunlimited company, etc and accordingly prepare the documentsfor incorporation of the company. In this connection the

Memorandum and Articles of Association (MA & AA) arecrucial documents to be prepared.

What is Article of Association ?

What is Memorandum of Association ?

6By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

7/14

MEMORANDUM OF ASSOCIATION

Is the document that governs the relationship between the company and theoutside world. A memorandum of association is required to state

the name of the company,

the type of company (such as public limited company or private companylimited by shares),

the objectives of the company,

its authorized share capital, and the subscribers (the original shareholders ofthe company)..

ARTICLE OF ASSOCIATON

Are the regulations governing the relationships between the shareholders anddirectors of the company, and are a requirement for the establishment ofa company. Together with the memorandum of association, they form the

constitution of a company. Articles of association typically cover the issuing of shares (also called stock),

the different voting and dividend rights attached to different classes of share,

restrictions on the transfer of shares,

the rules of board meetings and shareholder meetings, and other similar

issues. 7By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

8/14

Mode of forming incorporated company (Sec. 12)

Any 7 or more persons (2 or more in case of a private company) associatedfor any lawful purpose may form an incorporated company, with or withoutlimited liability. They shall subscribe their names to a Memorandum ofAssociation and also comply other formalities in respect of registration. A

company so formed may be :

a) A company limited by shares, or

b) A company limited by guarantee, or

c) Unlimited company.

8By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

9/14

Registration of the CompanyOnce the documents have been prepared, vetted, stamped andsigned, they must be filed with the Registrar of Companies forincorporating the Company.

The following documents must be filed in this connection: -

1.The Memorandum of Association duly signed by subscribers and the Articles ofAssociation, if any signed by subscribers to the Memorandum of Association

2. An agreement, if any, which the company proposes to enter into with any individualfor appointment as its managing director or whole-time director or manager.

3. A statutory declaration in Form 1 by an advocate, attorney or pleader entitled toappear before the High Court or a company secretary or Chartered Accountant inwhole time practice in India who is engaged in the formation of the company or bya person who is named as a director or manager or secretary of the company thatthe requirements of the Companies Act have been complied with in respect of theregistration of the company and matters precedent and incidental thereto.

9By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

10/14

Public Company

In addition, in case of a public company, the following documents must alsobe filed: -

1.Written consent of directors in Form 29 to agree to actas directors and their written consent to act as directors

and take up qualification shares.

2. The complete address of the registered office of thecompany in Form 18.

3. Details of the directors, managing director andmanager of the company in Form 32.

10By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

11/14

Certificate of IncorporationOnce all the above documents have been filed and they are found tobe in order, the Registrar of Companies will issue Certificate ofIncorporation of the Company. This document is the birth certificate ofthe company and is proof of the existence of the company. Once, thiscertificate is issued, the company cannot cease its existence unless it

is dissolved by order of the Court.

What are other formalities before or after incorporation?

Obtaining Permanent Account Number (PAN) from Income TaxDepartment

Obeying Shop and Establishments Act

Registration for Import Export code from Director General of ForeignTrade

11By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

12/14

Software Technologies Parks of India registration (STPI) if required

RBI approval for foreign companies investing in India and FIPB approval, ifrequired.

The directors of an Indian company, both Indian and foreigner directors, arerequired to obtain Director Identification Number - DIN and Digital SignatureCertificate - DSC

12By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

13/14

Commencement of BusinessA private company or a company having no share capital can commence itsbusiness immediately after it has been incorporated.However, other companies can commence their activities only after theyhave obtained Certificate of Commencement of Business. For this purpose,the following additional formalities have to be complied with: -

-A statutory meeting within 6 months with ROC-A statutory report to ROC

Once the above provisions have been complied with, the Registrar ofCompanies grants Certificate of Commencement of Business after which

the company can commence its activities

13By Rajat Jhingan

8/4/2019 Formation_of_company by Rajat Jhingan

14/14

Thank you

14By Rajat Jhingan