Formation of a Public Company

FORMATION OF A PUBLIC COMPANY

MEANING OF FORMATION:

The act of giving form or shape to anything.

The fabrication of something in a particular shape.

MEANING OF FORMATION

MEANING OF FORMATION


Introduction : For the purpose of establishing an industrial

or commercial undertaking on a corporate basis, the legal procedure as laid down in the companies Act has to be followed.

The procedure for the formation of a public company has been divided into four stage as follows.


FORMATION STAGES

PROMOTION STAGE

INCORPORATION STAGE

BUSINESS COMMENCEMENT STAGE

CAPITAL SUBSCRIPTION STAGE


PROMOTION STAGE :Meaning of a promotion of a companypromotion is the first stage in the formation of a

company. The term ‘promotion’ has been defined by G.W.

Gerestenberg as “ The discovery of business opportunities and the subsequent organization of funds, property and managerial ability into a business concern for the purpose of making profit there form”.


PROMOTION INVOLVES FOLLOWING STEPS: 1. Discovery of business opportunity.i. Before starting a business, the promoters

develop an idea to start a business. ii. They think about the existing and future

demand of the product to be produced.


PROMOTION INVOLVES FOLLOWING STEPS: 2. Detailed investigations. After preliminary investigations, they carry out

detailed investigations about the business.i. How the capital is to be realized. ii. The place from where the material, labour is to be

collected.iii. The market for the goods. iv. The size of the business. v. The expected profit etc.


PROMOTION INVOLVES FOLLOWING STEPS: 3. Assembling different factors. i. After carrying out detailed investigations, the

promoters start assembling various business elements.

ii. They secure license, copy right if necessary, appointment of necessary employees.

iii. The financial needs and the demand for the product is estimated.


PROMOTION INVOLVES FOLLOWING STEPS: 3. Assembling different factors.

CAPITAL

LABOURS

LAND OR PLACE OR OFFICE ,


PROMOTION INVOLVES FOLLOWING STEPS:4. Capitalization. i. A company needs fixed and working capital

for establishing and running a business. ii. The promoters estimate the total amount of

capital needed and then find out the types and sources of raising capital.

iii. They contact banks and underwriters for the issue of shares, debentures

CAPITALIZATION.

Types of

sources of

capital

Banks

Shares, debenture etc.

Relatives

Underwriters

FORMATION OF A PUBLIC COMPANY PROMOTION INVOLVES FOLLOWING STEPS:

5. Preparation of essential documents. The promoters prepare all the important

documents-for the promotion of the company like Memorandum of Association, Articles of Association and Prospectus.

FORMATION OF A PUBLIC COMPANY Incorporation stage:Incorporation or registration of company is

the second stage of in the formation of the company.

It is effected by registering the company with registrar of the state in which the company is located.

FORMATION OF A PUBLIC COMPANY D) Payment of stamp duty etc.

E) Obtaining the certificate of incorporation.

F) Issue of certificate of incorporation.

FORMATION OF A PUBLIC COMPANY Step to be taken by the promoters for incorporation of a public limited

company is as follows.

A) Obtaining the approval of the registrar to the proposed name of the company.

B) Preparatory arrangement.

C) Filing an application with the registrar of companies along with the following document and statement for registration of the company.

FORMATION OF A PUBLIC COMPANY Step to be taken by the promoters for incorporation

of a public limited company is as follows. A) Obtaining the approval of the registrar to the

proposed name of the company. 1. Application for the approval of the proposed

name. The promoters can choose any name they

like for their proposed company but the proposed name should not be identical with or similar to the name of an existing company.

FORMATION OF A PUBLIC COMPANY 2. Application for industrial license : If the business

of the company requires an industrial license under any Act, then the promoters have to make an application to the central government for grant of an industrial license.

3. Approval of the chief controller of imports and exports: This is necessary where the plant and machinery are to be imported for the company.

4. Approval of exchange control department of the Reserve Bank of India: this is necessary if the company intends to issue share to non-resident …

FORMATION OF A PUBLIC COMPANY … indian or where it intends to open an

accounts outside India.B) Preparatory arrangement : The promoters

have to engage underwriters, brokers, bankers, solicitors, auditors and signatories to the memorandum of association who are required in the formation and working of the company.

FORMATION OF A PUBLIC COMPANY C) Filing an application with the registrar of

companies along with the following document and statement for registration of the company.

a. Memorandum of association. It is the first document to be prepared and filed

with the registrar of companies. It contains the name of the company, aims and

objects, address, of the registered office of the company, capital structure etc…….

FORMATION OF A PUBLIC COMPANY b) Articles of association: This documents contains rules and

regulation regarding the internal working of the company.

It should also be properly stamped and duly signed by the signatories to the memorandum and also attested by the signature of a witness.

FORMATION OF A PUBLIC COMPANY It should be properly stamped and signed by

at least 2 persons in the case of private company and 7 persons in the case of a public company and attested by the signature of a witness.

The subscribers to the memorandum are called the original members of the company.

FORMATION OF A PUBLIC COMPANY c) Preliminary agreements: If the company propose to enter into any

agreement s with any individual for appointments as company’s managing director, or whole time directors or manager, the same must be filed with the registrar at the time of registration of the company.

FORMATION OF A PUBLIC COMPANY d) Notice of address of the registered office . This form is usually filed along with the

above documents but this may be filed within 30 days of registration also, if the same cannot be filed at the time of registration.

e) List of directors: A list of persons who have consented (agreed or approved) to act as directors of the company .

FORMATION OF A PUBLIC COMPANY f) Written consent of directors: A separate

written consent duly ( according to ) signed by each proposed directors of the company.

g) Undertaking ( a agreement to do something) to purchase and pay for qualification shares : An undertaking by each director to take up and pay for his qualification shares.

h) statutory declaration: A statutory declaration stating that all the requirements of the companies Act and other………………….

FORMATION OF A PUBLIC COMPANY …… formalities relating to the registration have

been complied with should be filed with the registrar. Such declaration must be signed by ,

1. An advocate of the supreme court or high court or chartered accountant engaged in the formation of the company.

2. An attorney a pleader entitled to appear a high court etc..

FORMATION OF A PUBLIC COMPANY D) Payment of stamp duty : Along with the application for registration and the

above document the promoters must pay the required stamp duty, filling fees and registration fees to the registration of companies.

E) Obtaining the certificate of incorporation: when all documents like application, license, and

payment of fees presented to registrar of companies fro registration , he will examine them closely to satisfy himself regarding following ……

FORMATION OF A PUBLIC COMPANY .... points :a. All the requirement of the company Act. Have

been complied with.b. The objects of the company are lawful.c. The requisite number of persons required under

the Act have subscribed and duly signed.d. The memorandum and articles of the company in

all respects with the provision of the Act.e. The name proposed by the company acceptable.

FORMATION OF A PUBLIC COMPANY f) The statutory declaration has been properly

made. If registrar is fully satisfied that all the aforesaid

requirement have been complied then he will register the company and enter its name in the register of companies.


F) Issue of certificate of incorporation : on registration, the registrar issue a certificate of incorporation whereby he certifies that the company is incorporated. It contains the name of the company, the date of its issue and the signature of the registrar with seal.

From the date of issue of certificate of incorporation, the company comes into existence. The legal effect of the certificate of incorporation are as under…………..


1. The company comes into existence and it has a common seal or a legal entity quite distinct from its members.

2. The life of the company takes places from the date of certificate or incorporation.

3. The company acquires a perpetual succession and it has a common seal.

4. It remains in existence forever unless it is wound up according to the provision companies Act…….

FORMATION OF A PUBLIC COMPANY …… the death, bankruptcy or lunacy or retirement of

any of its members does not affect its existence.5. Since the company becomes an artificial legal

person, it can sue and be sued in its own name.6. Debts and obligations of the company are the

property of the company belongs to the company itself and not to its individual members.

7. The memorandum an the articles of association become binding on the company and its members.

FORMATION OF A PUBLIC COMPANY Certificate of incorporation :



FORMATION OF A PUBLIC COMPANY 3. CAPITAL SUBSCRIPTION STAGE: Immediately after the incorporation, the company

has to make necessary arrangements for raising the capital the company.

This is the capital subscription stage. It may be noted that after the incorporation of

the company, the affairs of the company are taken over by the directors.

FORMATION OF A PUBLIC COMPANY …..usually the promoters are the first directors of the

company are taken over by the necessary arrangements for raising the capital of the company, meeting of the board of directors will be convened to deal with the following matters:

• Appointment of secretary, fixing terms and condition of service, pay scale etc,.

• Appointment of bankers, brokers, solicitors, and auditors.

• Adoption of preliminary contracts. …………..cont

FORMATION OF A PUBLIC COMPANY • Appointment of managing directors or manager

and other responsible officer.• Approval of the design of the common seal of the

company.• Adoption of underwriting contracts.• Listing of shares on the stock exchange.

FORMATION OF A PUBLIC COMPANY 4. BUSINESS COMMENCEMENT STAGE :The company has to file with registrar the following

documents and statements in order to obtain the certificates to commence business:

• The declaration by the company that the shares payable in cash have been allotted up to the minimum subscription amount mentioned in the prospectus has been subscribed.

FORMATION OF A PUBLIC COMPANY The declaration by the company that the

directors have purchased their qualification shares and have paid for them.

The declaration that no money is liable to be refundable to the applicants by reason of failure to apply for or to obtain permission for shares or debentures to be dealt in on any stock exchange.

FORMATION OF A PUBLIC COMPANY The declaration that all the legal requirements

precedent to the commencement of business have been complied with.

This declaration should be signed by the secretary or director or an advocate on behalf of the company.

DUTIES OF THE SECRETARY AT CAPITAL SUBSCRIPTION STAGE

The secretary at the capital subscription stage are as follows:

To prepare a draft copy of the prospectus and get it approved at the first board meeting.

To arrange for the printing of the prospectus and application form for shares.

To get the prospectus duly signed by the directors.To file a signed copy of the prospectus with the

registrar of companies.


To make arrangements with the company’s bankers for receiving application for shares along with application money and open a special account in the company’s name for crediting the account with application money.

To issue the prospectus to the public within 90 days of its registration with the registrar either by news paper advertisement or otherwise.


To make an application to the stock exchange authorities for the listing of the shares.

To take necessary steps to convene (come or bring together for a meeting or activity, assemble) a board meeting to pass a resolution for allotment of shares.

To make arrangement for the issue of letters of allotment to those applicants who have been allotted shares, and letters of regret (feel sad, repentant, or disappointed over (something that one has done or failed to do) )to those who have …


…. not been allotted shares. to file a return of allotment with registrar within

30 days of the date of allotment.To prepare share certificate and deliver the same

within 3 months of the date of allotment.Meaning of return of allotment: Every company

whether public or private and having a share capital within 30 days of allotment is required to send to the Registrar, a document known as the "Return of Allotment“……..

The return of allotment contains various details on allotment of shares such as the nominal value of shares allotted, names and addresses of allotees, amount paid or payable on each share and particulars of bonus shares and shares issued at discount. The secretary has to see that these documents are prepared and submitted to the Registrar.

PRELIMINARY CONTRACT AND PROVISIONAL CONTRACT

PRELIMINARY CONTRACT: Contracts made before its incorporation are

known as a preliminary or pre-incorporation contracts.

PROVISIONAL CONTRACTS: Contracts made after incorporation but before

obtaining the certificate to commence business, are known as provisional contracts.

TRANSFER AND TRANSMISSION OF SHARES

TRANSFER OF SHARES: Transfer of shares is a voluntary act of members

and it is the method of transferring the ownership rights of the shares from one person to another.

TRANSMISSION OF SHARES :Transmission of shares is the result of operation of

Law and it takes place only on the death, insolvency or lunacy of the share holder.

By muneeb sada

Documents

Formation of a Public Company