FORMATION OF A COMPANY

PRESENTED BY:

KANIKA GUPTA (4326)

SHEVANI GUPTA(4343)

MALIKA (4381)

PRESENTED TO:

COMPANY:- Is an Artificial Person created by Law. Company means an assocoation of many

persons who contribute money or money`s worth to a common stock and employed for a common purpose.The common stock so contributed is denote in money and is capital of a company.The person who contribute it or to whom it belongs are members.The proportion of capital to which each member is entitled is his share. Share are always transferable although the right to transfer is often more or less restricted.

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

INTRODUCTION..

It may be noted that before a company is actually formed, certain persons, who wish to form a company, come together with a view to carry on some business. Such persons have to decide various questions a) which business they should start b) They should form a company c) Which type of company they required d) What should be the capital of company.

There are various stages in formation of company.

STAGES IN FORMATION OF A COMPANY

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, labour, 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

IMPORTANT DOCUMENTS BEFORE APPROACHING THE REGISTRAR :- AN INDUSTRIALIST LICENCE IF THE

PROPOSED BUSINESS IS COVERED BY INDUSTRIES ACT 1951

AN IMPORTANT LICENCE IS REQUIRED IF MACHINERY IS IMPORTED

APPROVAL OF GOVT. IN CASE OF FOREIGN COLLABRATION

APPROVAL OF GOVT. UNDER MONOPOLIES AND RESTRICTIVE TRADE PRACTICE ACT 1961, IF NECESSARY

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

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.

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.

HERE THE COMPANY SHOULD MENTION ITS MAIN OBJECTIVES SUBSIDARY OBJECTIVES OTHER OBJECTIVES

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 AUTHORISED CAPITAL SHOULD BE

MENTIONED A COMPANY IS NOT AUTHORISED TO ISSUE

ABOVE AUTHORISED CAPITAL

ASSOCIATION CLAUSE:- THIS CLAUSE CONTAINS DELCARATION OF

MEMBERS THE NAMES, ADDRESSESS AND

OCCUPATIONS OF THE SUBSCRIBERS SHOULD BE MENTIONED

THE SIGNATURES ARE TO BE ATTESTED BY PROPER WITNESS

REQUIREMENT AS TO MEMORANDUM:

The memorandum of every company must be:

PrintedDivided into paragraphs

numbered consecutivelySigned by subscribers and

witnessedDated

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

ALTERATION OF MEMORANDUM1. Alteration of Name Clause: A company can change its name at any time by

adopting the following procedure: By passing a special resolution: Company

name can be changed only if two thirds (70%) of shareholders vote for it.

By obtaining the approval of Central Government in writing: A name which is identical with the name of an existing company.

By passing an ordinary resolution: Government urges the company to change its name because of some lawful reasons, in this case only 51% votes of shareholders are needed to change its name.

By obtaining the previous approval of Central Government

2. ALTERATION OF REGISTERED OFFICE CLAUSE:

Change of registered office from one place to another within the same city: Pass ordinary resolution

Change of registered office from one city to another within the same state: pass special resolution

Change of registered office from one State to another: by passing special resolution (find about special and ordinary resolutions in previous page please)

3. ALTERATION OF OBJECTS CLAUSE:

The company may change its objects by adopting the following procedure

By passing a special resolution By filing the special resolution with the

Registrar of Companies within one month from the date of such resolution

4. ALTERATION OF CAPITAL CLAUSE:

Following types of alterations can be made simply by passing an ordinary resolution: Increase of share capital by issue of new shares. Consolidation or sub-division of existing shares

into shares of larger or smaller amount. Cancellation of unissued shares.

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.

CONTENTS OF ARTICLES OF ASSOCIATION

1. Amount of share capital: company calculates the face value of shares and mentions in the Article of Association. For example: value of shares (face value) in a company is $10, if company sells share for $25, 10 is the face value and 15 is earning, its also called premium. But if you sell below face value of $10, it’s called discount.

2. Transmission: it means transfer according to law, example: shareholder mentions in Article of Association that if he/she dies, his shares should be transferred to son/daughter etc. OR: in case of bankruptcy, if shareholder loses everything, the court will decide to sell his/her shares pay creditors.

3- Rights of share holders regarding vote, dividend, return of capital.

4- Rules regarding the issue of shares and debentures. (Debenture is a certificate that is issued by a company when it is in need of money, so investors buy it for a specific period of time and get interest after maturity date).

5- Procedure as well as regulations in respect of making calls on shares. (Making calls: A company issues 1000 shares for $10per share, so people write applications in order to buy some share & pay an amount of $2 for application, then company call on those people who applied to buy shares and ask them to come and pay & get the shares, that is called Making Calls. Sometimes companies receive more application comparing to the number shares issued for market, company selects that number of applications to sell the specific number of shares issued for sell, and rejects the rest, rejected applicants will get their $2 application fee back).

6- Manner of transfer of shares. (means different method/ways to issue different shares)

7- Rules regarding appointment of directors, managing directors, agents, secretaries.

8- Number, qualification, remuneration, powers and liabilities of directors. (Number of directors differs in public and private companies. Qualification: Eligibility of person like age, capability to work, experience, education, should be free of criminal charges etc. Remuneration: it is the amount of money paid to directors since directors are not employees of company so that is why don’t receive salaries but instead receive a specific percentage amount from the income of a company, for example 5% of income)

9- Declaration of dividends. (It should be clearly defined in Article of Association that how dividends should be distributed among share holders.)

10-Convening and conduct of meetings with reference to notice, quorum, poll, proxy, resolutions. (CONVENING: it clarifies how participants should be informed for meetings etc. it is reference to notice for meeting. QUORUM: it mentions the minimum number of participants in meetings as some important decisions taken during meetings so most of members of a company should be present in a meeting. POLL: Rules and regulation of voting, vote casting, polling station etc. PROXY: If a participant can’t attend a meeting, he/she writes a formal letter introducing someone else to attend meeting on his/her behave, it’s called proxy. RESOLUTION: Any decision which is taken in a meeting.)

11-Forfeiture of shares.12-Matters relating to account and audit,

(Clarifies how audit should take place or control accounts)

13-Rules for winding up of the company.

ALTERATION OF ARTICLES OF ASSOCIATION

PERMISSION OF COURT IS NOT NECESSARY SPECIAL RESOLUTION AND APPROVAL OF

GOVERNMENT IS REQUIRED BUT IN SOME CASES THEY SHOULD FOLLOW

COMPANIES ACT AS WELL AS MEMORANDUM

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

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.

LIST OF DIRECTORS :- THE LIST OF DIRECTORS WHO HAVE AGREED

TO ACT AS A DIRECTORS SHOULD FILED WITH REGISTRAR

THEY SHOULD SUBMIT THEIR - NAMES - AGE - OCCUPATION - FULL ADDRESSES IN CASE WHEN THE LIST IS NOT READY

MEMORANDUM WILL BE DEEMED TO BE THE DIRECTORS

CONSENT LETTER OF DIRECTORS :-

EVERY PERSON WHO IS READY TO ACT AS DIRECTOR MUST GIVE A WRITTEN UNDERTAKING STATING THAT HE IS WILLINGLY AGREED TO ACT AS A DIRECTORS OF THE COMPANY

ALONG WITH THE LETTER THE MUST SUBSCRIBE THE QUALIFICATION OF SHARES AS MENTIONED IN ARTICLES OF ASSOCIATION AND HAVE PAID YHE AMOUNT ACCORDINGLY

NAME APPROVAL CERTIFICATE :-

A COPY OF LETTER FROM THE REGISTRAR ANNOUNCING THAT THE NAME OF COMPANY WAS APPROVED WITHOUT ANY OBJECTION

STATEMENT OF AUTHORISED CAPITAL :-

THE COMPANY SHOULD PREPARE AND SUBMIT A STATEMENT OF PROPOSED CAPITAL WHICH IS AUTHORISED TO COLLECT FROM THE PUBLIC

IT CONTAIN THE NUMBER OF SHARES AND DEBENTURESAND 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 RECIPT OF THE REGISTRATION WHICH IS PAID TO REGISTRAR OFFICE OF WHICH IT IS CALCULATED BASIS ON THE AUTHORISED CAPITAL OF THE COMPANY

ISSUE OF CERTIFICATE OF INCORPORATION

ISSUE OF CERTIFICATE AFTER THE RECEIPT OF THE ALL THE

DOCUMENTS , THE REGISTRAR WILL SCRUTANISE THE DOCUMENTS .

AFTER EVERYTHING IS SATISFIED , THE REGISTRAR WIL ISSUE THE CERTIFICATE OF INCORPORATION

WITH THIS CERTIFICATE, THE COMPANY GETS ITS RECOGNITION AS A BODY OF CORPORATE.

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.