Question

Brief different stages in Formation of a Company.

Answer 1

Section 3 (1) of the Act states that a company may be formed for any lawful purpose by-

• seven or more persons, where the company to be formed is to be a public company;
• two or more persons, where the company to be formed is to be a private company;
• one person, where the company to be formed is to be One Person Company.

The process of formation of the company consists of different stages:

1. Promotion:

• The promotion stage begins when the idea to form a company comes into the mind of a person.

2. Registration:

• The second stage in the formation of the company is the incorporation or – registration. In this stage, the promoter has to fix the name of the company, prepare the necessary documents (Memorandum and Articles of Association), fix the registered office, and name of the directors. After this, a certificate of incorporation is issued.

3. Capital Subscription: A public limited company having its share capital has to pass through two stages. One of them is the capital subscription. The steps for this are:

• Formalities for raising capital
• Issuing prospectus
• Appointing official banker
• Pass a resolution to make allotment

4. Commencement of Business: As per section 11 of the Act, a company having share capital should file with the Registrar, declaration stating that

• Every subscriber has paid the value of shares.
• Paid-up capital is not less than Rs.5 lakhs for a public limited company and Rs.1 lakh in the case of a private limited company.
• It has filed with the Registrar, regarding the verification of the registered office. After fulfilling these details, the Registrar will issue a certificate of commencement of business.