FORMATION OF A COMPANY

PRESENTED BY:

Anand Aggarwal(1211206)

Jigar Mehta(1211245)

Kunal Goel(1211248)

Punit Sethia(1211250)

Pratik Jain(1211251)

Vivek Agarwal(1211255)

COMPANY:- A company can be defined as an "artificial

person", invisible, intangible, created by or under law, with a discrete legal entity, perpetual succession and a common seal. It is not affected by the death, insanity or insolvency of an individual member.

FORMATION OF COMPANY…

STEPS INVOVED:-

Promotion Incorporation Raising of Capital In case of PUBLIC LIMITED COMPANY,

securing a certificate for commencement of business.

1.

PROMOTIO

N

Promotion of a Company : The promotion of a company refers to all those steps which are taken from the time of having an idea of starting a company to the time of actual starting of the company business.

Who is a promoter?

1. People who think of forming a company and take necessary steps in its formation are known as “Promoters” or “Company Promoters”.

2. The person who conceives such an idea is called “Company Promoter”.

FUNCTIONS OF PROMOTERS:

To discover an idea for establishing a company.

To make detailed investigations about the demand for the product, availability of power, labor, raw material.

To investigate the idea and know whether the formation of the company is possible and profitable.

To find out suitable persons who are willing to act as first directors of the company.

To settle the name of company.

To select bank, legal advisor, auditor, underwriter for the company.

To submit all the documents required for incorporation with the registrar.

To meet all the preliminary expenses for floating of a company.

To make contracts with vendors, underwriters, and managing directors of the company.

To arrange for the loan etc. from various financial resources.

To make proper arrangement for the office of the company.

DUTIES AND OBLIGATION OF PROMOTERS The promoters must disclose fully all the material

facts regarding the formation of a company. The promoters must faithfully disclose all the

facts relating to the property which they want to sell to the company.

The promoters must not make an unfair use their position.

To disclose the liability and pay the secret profits if promoters have earned.

The prospectus of the company should contain the true statements.

Liability on statutory mistakes or frauds in the property.

REMUNERATION OF PROMOTERS:

He may be paid a certain lump sum. He may be given shares of the company. He may be given commission of the shares

sold by the company. He may be given an option to buy the shares

of the company at par when their market price is higher.

He may sell his own property to the company at higher price and earn profit.

2.

INCORPORATION

REGISTRATION AND INCORPORATION OF A COMPANY: The second stage for establishment of a

company is to get the company incorporated or registered. The promoters have to prepare and file a number of documents with the registrar.

1-The memorandum of association signed by at least seven persons

2-The articles of association signed by at least seven persons

3-Promoters have to file a prospectus or statement in lieu of prospectus with the registrar.

4-A list of directors and their willingness to act, duly signed by each of them.

5-Notice of address at which the registered office of the company will be situated.

All the director whose names are in the list have to submit a declaration certificate that they have taken up qualifying shares and have paid up the money.

DOCUMENTS NEEDED :- MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION LIST OF THE DIRECTORS CONSENT LETTER FROM DIRECTORS STATEMENT OF CAPITAL

MEMORANDUM OF ASSOCIATION

Memorandum of association is the basic document of a joint stock company.

It is known as the charter of the company. It sets out limits outside which the company

cannot go. To enable the shareholders, creditors and all

those who deal with the company.

CLAUSES (CONTENTS) OF MEMORANDUM OF ASSOCIATION

1. Name Clause.2. Registered Office clause.3. Objective Clause.4. Liability Clause.5. Capital Clause.6. Association Clause.

NAME CLAUSE:- A company adopts any name but it should

not be identical to the name of the existing company.

The name should not be prohibited one. The name of the company must end with the

word limited so all the persons dealing with the company must know that their liability is limited up to the extent of their of shares.

In the case of private limited company the word private limited to be used as the last word of the name.

SITUATION CLAUSE :- The company is required to state the name of

the province in which the office is situated. To give the exact address and name of the

company where the company is located. A person can know through this the jurisdiction

of the court under which the company operates.

It also indicates the place for holding annual meeting of the company.

The creditors, customers, government, know the whereabouts of the company.

All correspondence is done at the office of the company.

OBJECTIVE CLAUSE :- It is the essence of memorandum. It clearly

defines the sphere of the company activities. It indicates a series of objects for which the company is established.

LIABILITY CLAUSE :- THE EXTENT AND NATURE OF THE LIABILITY

OF SHARESHOLDERS SHOULD BE STATED LIKE LIMITED LIABILITY LIMITED BY GAURANTEE UNLIMITED

The liability of the members is limited to the extent of the value of shares purchased by them.

In a case if a shareholder has to pay the unpaid amount on the share investment, he can be compelled to pay to the extent of unpaid amount on the shares, nothing more.

CAPITAL CLAUSE :- Division of capital into shares of different

dominations The extent of each capital should be

specified The authorized capital should be mentioned A company is not authorized to issue above

authorized capital

ASSOCIATION CLAUSE:- This clause contains declaration of members The names, addresses and occupations of

the subscribers should be mentioned The signatures are to be attested by proper

witness.

SIGNING OF MEMORANDUM:

The memorandum must be: Be signed by each member Who shall add his name and surname in full,

any former name or surname in full His occupation; and Father’s name; or In the case of a married woman or widow,

her husband’s name, in full His nationality of origin; and His usual residential address in full

DOCTRINE OF ULTRA-VIRES

The term ‘ultra’ means beyond and the term ‘vires’ means powers

An act ultra-vires the directors: It is an act which is beyond the powers of the directors.

An act ultra-vires the memorandum of association: It is an act which is beyond the powers given by the memorandum of association.

An act ultra-vires the articles of association: It is an act which is beyond the powers given by the articles of association.

ARTICLES OF ASSOCIATION After memorandum of association, Articles of

Association is the most important document to prepare and present to registrar for incorporation or registration.

Article of Association explains about the rules and regulation of a company, it discusses the internal points and boundaries that the company can’t go beyond that.

Articles of association is a legal document second in importance to memorandum.

The articles of association are regulations which governs the internal organization and conduct of the company.

The articles of association describe powers of the directors, other officers and shareholders as to voting etc.

It also describes the mode and form in which changes in the internal regulations of the company may from time to time be made.

The articles are subordinate to the memorandum and they cannot go beyond the scope of the companies act and memorandum of association.

COMPARISON BETWEEN MEMORANDUM AND ARTICLES OF ASSOCIATIONMemorandum of

Association It contains conditions upon

which the company is granted registration.

It contains objects and powers of the company

It can not be easily altered. The company has to follow strict procedure for the alteration.

It regulates the relationship of the company with the outsiders, as the objects and powers of the company are made known to the outsiders

Article of Association

These are internal regulations of the company

It provides the regulation by which those objects and powers are to be carried into effect.

It can be easily altered as compared to memorandum of association.

It regulates the internal management of the company, as the rules and regulations contained in it describe the internal procedure to be followed by the company

3. Raising

Of Capital

PROSPECTUS

Definition: “A prospectus means any document described or issued as prospectus and includes any notice or circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or debentures of a body corporate”.

CONTENTS OF PROSPECTUS

1. Name and registered address of the company.

2. The main objects of the company.3. Information regarding listing of shares on a

recognized stock exchange.4. Particulars pertaining to different classes

of shares and extent of interest of holders.5. The number of shares (if any) fixed by the

articles as the qualification of a director and the remuneration of directors.

6. The date of opening and closing of the issue.

7. The names and addresses of auditors and lead managers.

8. Amount payable on application and allotment of shares.

10.Details regarding debenture.11.Amount of premium or discounts on

shares.12.Details regarding property purchased or

acquired against issue of shares.13.Preliminary expenses.14.The promoters and their background.15.Benefit paid to any promoters or officer

and consideration thereof.16.Details regarding contract or appointment

of Chief Executive, Managing Agent, Secretary and every other material contract.

17.Name and address of legal advisors.18.Full particulars of nature and extent of the

interest of every director or promoter.19.Voting rights and rights in respect of

capital and dividend.20.The authorized, issued, subscribed and

paid up capital of the company.21.The size of present issue. Out of this, the

shares reserved for preferential allotment to promoters and other should also be stated.

22.Restrictions imposed upon the members of the company.

23.Quorum of general meeting.24.The location of the plant.25.Information about projects, plant and its

machinery raw material.

STATEMENT OF AUTHORISED CAPITAL :-

The company should prepare and submit a statement of proposed capital which is authorized to collect from the public

It contain the number of shares and debentures and the amount of each category.

STATUTORY DECLARATION :-

A copy of statutory declaration should be enclosed stating to that all the formalities have duly compiled with as per the provisions of companies act.

It should be signed by an advocate of high court or the supreme court or a charted accountant or a director or a secretary or manager .

RECEIPT OF REGISTRATION FEE :-

It is necessary to attach the receipt of the registration which is paid to registrar office of which it is calculated basis on the authorized capital of the company

ISSUE OF CERTIFICATE After the receipt of the all the documents ,

the registrar will scrutinize the documents . After everything is satisfied , the registrar will

issue the certificate of incorporation With this certificate, the company gets its

recognition as a body of corporate.

ISSUE OF CERTIFICATE OF INCORPORATION

A PRIVATE COMPANY CAN START ITS OPERATIONS IMMEDIATELY AFTER OBTAINING THE CERTIFICATE OF INCORPORATION

4.Comencement Of

Business

4.COMENCEMENT OF BUSINESS

A certificate of incorporation is one which certifies that the company is incorporated. It is issued by the registrar of companies. It contains :-

1. Name of company.2. Date of its issue.3. Signature of registrar with seal.