Chapter 3 formation of company A company comes into existence through the following process: a. promotion; b. incorporation; c. capital subscription; and d. commencement of business. A private company needs only to go through the first two stages.

1. Promotion Gerstenberg has defined promotion 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 profits therefrom.” The following steps are followed during the promotion of the company: Name of the company The following should be observed by the promotors when choosing a name for the company: Name not suggest criminal or immoral intent;

Name not suggest any association with the government and its department; The name should not be mislead; The name should not be similar to the name of existing company or any other associations b. Discovery of idea; c. Detailed investigation; d. Assembling; and e. Financing of proposition.

2. Registration or Incorporation The promoters take the following steps for registration or incorporation of a company: a. Presentation of documents Memorandum of association Article of association Statement of company’s nominal capital Declaration of compliance List of directors.

III. Certificate of incorporation After receiving the required documents, the registrar opens a particular file for the company and register the name of the company and produce the certificate of incorporation. Original copy of the certificate will be given to the promoters and a copy will be left in the file of the company. Any rejection or decline from the register’s side without any valid reasons after delivering all required documents shall give the promoters the right to apply an order of Mandamus to a court.

Once certificate is issued it acts as conclusive evidence that the company was properly formed in accordance with all the requirements of the law. Circumstances when certificate of incorporation can be withdrawn: Where it discovered that the company was formed with blasphemous objectives. Where it discovered that the objects of the company are immoral. Where the entity that was registered as a company is not a company in nature.

Where the company to which the certificate has been issued turns out to be an enemy of the state. Iv. Acquisition of legal personality Where the company is registered and the certificate of incorporation is issued; it becomes a legal person in the eyes of the law by the name contained in its memorandum.

C. Capital subscription In order to make necessary arrangements for raising capital of the company; a meeting board of directors is convened to deal with Following: appointment of the secretary and fixing the terms and conditions of his appointment; appointment of bankers, brokers, solicitors and auditors; adoption of preliminary contracts entered by the promoters on behalf of the company in the pre-incorporation stage;

Adoption of the draft ‘prospectus’ or ’statement in lieu of prospectus’; Appointment of managing director or manager and other responsible officers of the company; Approval of the design of the common seal of the company and authorizing the custody thereof; and Listing of shares in the stock exchange.

The process of capital subscription the company invites the public , through its directors, to subscribe for its shares; Company files a copy of prospectus with the registrar of the company and published on advertised date; The investors may obtain a copy of the prospectus from either from the registered office Or its bankers; Investors forward their application for shares with the money to the company’s banker mentioned in the prospectus;

The bankers will forward the application to the company where the directors consider the allotment of the shares if the subscribed capital is at least equal to the minimum subscription as disclosed in the prospectus. After that, allotment letters will be sent to the applicants who have been allotted to share while letter of regret will be sent to those have been rejected and For those who have been allotted share will receive share certificate after sometime;

D. commencement of Business A private company can commence business immediately after the grant of certificate of incorporation, but a public limited company will have to undergo some more formalities before it can start business. The certificate for commencement of business is issued by Registrar of Companies, subject to the following conditions: 1. Shares payable in cash must have been allotted up to the amount of minimum subscription

Any questions or Comments!! 2. Every director of the company had paid the company in cash application and allotment money on his shares in the same proportion as others. On getting trading certificate, the process of formation of public company is complete and it is now that such company can start its business. Any questions or Comments!!