FORMATION OF A COMPANY CHAPTER - 3

A joint stock company does not come into existence on its own. Planned action and conscious efforts are required for its formation. It involves several legal formalities. FORMATION OF A COMPANY

Formation of company involves the following stages. 1) Promotion 2) Incorporation 3) Floatation or capital subscription 4) Commencement of business

Meaning of promotion The term promotion refers to the sum total of activities by which a business enterprise is brought into existence.

Definition According to C.W Gerstenberg, “ Promotion is the discovery of business opportunities and the subsequent organization of funds, property and management ability into business concern for the purpose of making profit there from”

A Joint stock company may be promoted in any of the following two ways: 1) By converting an existing partnership or proprietorship firm into a joint stock company 2) By setting up a new company altogether to take up a new line of business.

STAGES IN PROMOTION 1) Discovery of business idea: It begins with the conception of an idea or business opportunity. New business or Take over existing one.

STAGES IN PROMOTION 2 Detailed investigation: Once the idea has been conceived thorough investigation made to establish the soundness of the proposition in terms of technical feasibility and commercial viability. Study market demand, availability of rawmaterials,machinery etc..

STAGES IN PROMOTION After investigation is completed the findings are presented in a type written report, known as project report or feasibility report. The report helps in judging whether proposition will yield the fair return on the investment and for the risks undertaken. It is also helpful in procuring licenses and finance from governmental agencies.

STAGES IN PROMOTION The report contains the data's collected, estimates of costs and revenue, experts opinion and recommendations,etc…

STAGES IN PROMOTION 3 Assembling: once the promoter is convinced, he takes steps to give the idea a practical shape. He persuade other persons to join hands with him and gets the invention made He may also acquire some patent rights.

STAGES IN PROMOTION He selects the factory site, decides about the plant and machinery and contacts suppliers of raw materials,etc… Assembling also involves making contracts for the purchase of materials,building,machinary,tools,capital.etc..

STAGES IN PROMOTION 4 Financing of preposition: At this stage, financial plans are prepared with respect to capitalisation,capital structure, time and method of capital issue,etc. The financial requirements are estimated and the sources from which the money will come are decided.

STAGES IN PROMOTION The Business preposition is presented to the public in the form of a “prospectus” In order to persuade them that it deserves their financial support. Agreements are made with underwriters. stock brokers,bankers,etc..

Structure of Formation Formation of a company Promotion commencement Of business Floatation Incorporation Discovery of ideas Detailed investigation Assembling Financing Memorandum Articles Consent of directors Undertaking to take Qualification shares Statutory declaration Permission From SEBI Appointments Issue prospectus Application for listing Allotment Copy of prospectus Return of allotment Minimum subscription Qualification shares Permission of listing