Stages in the formation of a public company are in the following order *
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a. Promotion, Commencement of Business, Incorporation, Capital Subscription
b. Incorporation, Capital Subscription. Commencement of Business, Promotion
c. Promotion, Incorporation, Capital Subscription, Commencement of Business
d. Capital Subscription, Promotion, Incorporation, Commencement of Business
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The formation of a company is a lengthy process. For convenience the whole process of company formation may be divided into the following four stages: 1. Promotion Stage 2. Incorporation or Registration Stage 3. Capital Subscription Stage 4. Commencement of Business Stage.
Stage # 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 into being an enterprise to operate a business. It presupposes the technical processing of a commercial proposition with reference to its potential profitability. The meaning of promotion and the steps to be taken in promoting a business are discussed in brief here.
Promotion of a company refers to the sum total of the activities of all those who participate in the building of the enterprise upto the organisation of the company and completion of the plan to exploit the idea. It begins with the serious consideration given to the ideas on which the business is to be based.
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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 therefrom.”
According to H.E. Heagland, “Promotion is the process of creating a specific business enterprise. Its scope is very broad, and numerous individuals are frequently asked to make their contributions to the programme. Promotion begins when someone gives serious consideration to the formulation of the ideas upon which the business in question is to be based. When the corporation is organised and ready for operation, the major function of promotion comes to an end.”
According to Guthmann and Dougall, “Promotion starts with the conception of the idea from which the business is to evolve and continues down to the point at which the business is full, ready to begin operations in a going concern.”
Stage # 2. Incorporation or Registration Stage:
Incorporation or registration is the second 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.
Procedure to Get a Company Registered:
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In order to get a company registered or incorporated, the following procedure is to be adopted:
(A) Preliminary Activities:
Before a company is incorporated, the promoter has to take decision regarding the following:
1. To decide the name of the company
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2. Licence under Industries Development and Regulation Act, 1951
(B) Filing of Document with the Registrar:
1. Memorandum of Association
2. Articles of Association
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3. List of directors
4. Written consent of directors
5. Statutory declaration
Certificate of Incorporation:
On the registration of memorandum and other documents, the Registrar will issue a certificate known as the Certificate of Incorporation certifying under his hand that the company is incorporated and, in the case of a limited company that the company is limited.
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The specimen of certificate of incorporation is given below:
Certificate of Incorporation
Effects of Incorporation:
The certificate of incorporation is conclusive evidence of the fact that:
(i) The company is properly incorporated and duly registered;
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(ii) The terms of the Memorandum and Articles are within the law;
(iii) All requirements of the Act in respect of registration have been complied with;
(iv) A private company can start its business after getting the certificate of incorporation; and
(v) With the issue of certificate, the company takes birth with a separate legal entity.
Stage # 3. Capital Subscription Stage:
A private company or a public company not having share capital can commence business immediately on its
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