FORMATION OF

COMPANIES

Presented by: Manohar Das

WHAT DO YOU MEAN BY
FORMATION OF A COMPANY

A campany 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.
Stages in the formation of a
company

• Promotion

• Incorporation of a company

• Capital Subscriton

• Commencement of Business
 PROMOTION OF A COMPANY

➢ First stage in the formation of a company

➢ Promotion means the initial work involved in

bringing a business concern into exsistence
and making arrangements for its proper
running
 PROMOTION STAGE INCLUDES

1. Discovery of business oppor tunities

2. Detailed investigation

3. Assembling necessary requirements

4. Financing of proposition
 PROMOTERS

❖ Promoters is a person who under takes to form

a new company and carries out all
thepreliminary work in connection with its
establishment as a going concern
 TYPES OF PROMOTER

❑ Professional promoters

❑ Occasional promoters

❑ Entrepreneur promoters

❑ Financier promoters
 SELECTING COMPANY NAME

To be identif ied for legal and business

Purpose (“Ltd” or “ pvt Ltd”). The name should

not be similar to the exsistence

 INCORPORATION

➢ Second stage in the company formation

➢ A company is said to be incorporated when it

is registered with the Register of joint stock

companies
 RAISING OF SHARE CAPITAL

Entering onto an agreement with underwriters

Applying to the stock exchange for listing of

shares

Issues of prospectus inviting public to subscribe

Allotting shares
 DOCUMENTS OF COMPANIES

▪ Memorandum of Association

▪ Ar ticle of Association

▪ Prospectus of Association
 MEMORANDOM OF ASSOCIATION

▪ It is the char ter or Magna Car ta of the

company
▪ Most impor tant documents of the company
with which a company is registered
▪ It def ines the company ’s objects ,capital and
power
▪ It governs the outside relationship of the
company
 ARTICLES OF ASSOCIATION

▪ It is to be f iled with the register to get the

company registered

▪ It contains the rules and regulations for internal

management and administration of the company

 CAPITAL SUBSCRIPTION

▪ Third stage in the company formation

▪ Here, the public company can raise the

required funds from the public by means of

issuesof shares and debentures

 T h e f o l l ow i n g s t e p s a r e r e q u i r e d f o r r a i s i n g
Funds from the public

1. S E B I A p p ro v a l

2. F i l i n g o f p ro s p e c t u s

3. A p p o i n m e n t o f b a n ke rs , b ro ke rs a n d u n d e r w r i t e rs

4. Minimum subscription

5. A p p l i c at i o n t o s t o ck e xch a n ge

6. A l l o t m e n t o f s h a re s
 PROSPECTUS

The companies Act def ines prospectus as”any

prospectus, notice, circular, adver tisement or
other documents inviting deposits from the
public or inviting of fers from the public for
subscription or purchase of any shares or
debentures of a body corporate”
 CONTENT OF PROSPECTUS
• Date of issue of prospectus
• Name and register of f ice of the
company.Consent of Central Govt. for the
presentissue /compliance with the with the
SEBI guidelines
• Voting rights ,dividend ,expenses on issue
etc.
• Name of the stock exchange.
• Punishment for f ictitious application.
• Punishment for fictitious application

• Refund of issue if 9o% min. subscription not received

• Names and addresses of leading managers

• Issue of allotment letter or refund within 10 weeks with

interest.
• Date of opening and closing of issues.

• Credit rating from CRISIL (CREDIT RATINGINFORMATION

SERVICES OF INDIA LIMITED)

• Terms of Underwriting & Risk Factors

• Capital Structure of the company

• Terms and particulars of the issue.

• Restriction on transfer and transmission ofshares.

COMMENCEMENT OF BUSINESS
Last stage in the formation of a company

• At this stage, the ROC issue a Certificate of

Commencement of Business to a public
company

• After getting this certificate, the company can

start its business
THANK YOU