Formation of Company, Meaning & Stages

The formation of a company is the initial stage in the life cycle of a corporation. This is a process of incorporating or registering a business in the form of a Limited or unlimited company. The company which is a separate legal entity is distinct from its promoters who started it. In this article, we will discuss the process of company formation its stages and the different documents required to formulate a company

Formation of Company Overview

A company is an entity distinct from its members. It is formulated by the promoters who initially have an idea in their mind to start it. The idea that is conferred in the mind is then executed with the help of different resources like land labour and capital. The process of formation of a company has different stages.

What do you mean by Formation of Company?

A Company comes into existence when a group of people come together with a view of forming an association to exploit the business opportunities by bringing together; men, material, money and management.

Section 3 of the Companies Act, 2013, provides the basic requirements for forming a company. These are as follows:

• Formation of a public company involves 7 or more people who subscribe their names to the memorandum and register the company for any lawful purpose.
• 2 or more people can form a private company.
• One person can form a One-person company.

Stages of Formation of Company

The formation of a company is a process that involves four major stages. These are taken below

Promotion Stage

The promotion stage is the first stage in the formation of a . It involves the initial work involved in bringing a business concern into existence and making arrangements for its proper running. Below are the major features of the promotion stage

• Discovery of Business opportunities.
•  Detailed Investigation
• Assembling necessary requirements.
• Financing of proposition

A promoter is one “who undertakes to form a company with reference to a given object and to set it going who takes the necessary steps to accomplish that purpose”.

Selecting Company Name

The second stage of the formation of the company is the selection of its name. The company is identified as a legal entity by its name only. It can be a private limited company for a public limited. The name should not be similar to the existing company.

Incorporation Stage or Commencement Stage

“A company is said to be incorporated when it fulfils the formalities of registration and obtains “Certificate of Incorporation” by submitting the MoA, AoA and written consent of all the directors. A company is said to be registered when it is registered with the registrar of joint stock companies.

For a public company, the certificate of Incorporation is not the sole requirement. For commenting the business in the case of a public company the required certificate of commencement as well as certificates of Incorporation. Below are the documents required for incorporation of the company

Memorandum of Association(MoA)

It is the Charter or Magna Carta of the company. The most important document of the company with which a company is registered. It defines the company’s objects, capital and power. It governs the outside relationship of the company

Article of Association (AOA)

It is to be filed with the registrar to get the company registered. It contains the rules and regulations for internal management and administration of the company

Prospectus of Association

The Companies Act defines prospectus as “any prospectus, notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for subscription or purchase of any shares or debentures of a body corporate

Raising of Share Capital

This is the last stage of permission of the company where the company raises capital. If the company is a public limited company in that case they can offer the shares to the public in general. On the other hand, the company is a private limited company and the shares can be offered to a group of few people. This involves following the steps

• Entering into an agreement with underwriters.
• Applying to the stock exchange for listing of shares.
• Issue of prospectus inviting the public to subscribe.
• Allotting shares.

Conclusion

Incorporation of a company is a process through which a company comes into existence and has a separate legal entity from its owners. This process involves getting the company registered with the registrar of the companies. With the formal existence, the company can or can be sued by the other party.

Download UGC NET Commerce Study Notes PDF

The direct Link to Download UGC NET Commerce Study Notes PDF has been mentioned below. Candidate can download Formation of Company Study Notes PDF which has been mentioned below.

Download Formation of Company Study Notes PDF

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