Formation of
a company is a big and lengthy procedure. It means bringing your business idea
into existence. This process involves the completion of a lot of legal
formalities and procedures. There are three basic steps involved in the
formation – Promotion , Incorporation and Subscription of capital. The
important fact is that these three steps are required for the formation of a
public company only. In case of the private company, the first two steps are
enough. Hence, private company can be started right after the incorporation of
the company. Lets discuss these steps in detail.
PROMOTION
Promotion
means the discovery of a business opportunities and then taking the right steps
to grab it. According to the Section 2 (69), a promoter is someone who has
complete control over the management of the company, directly or indirectly,
and this could be as a shareholder or director or any other top position.
In the
promotion process, first the identification of the business opportunity is
necessary to further continue the process. After this, the promoter checks the
feasibility of the idea. The ides should be something that is realistic and
financially and economically possible. If the promoter is satisfied with the
finance requirement, then he can move ahead to launch the company.
Next, he has
to give a name to his company or brand by submitting an application to the
Registrar of Companies (ROC). It must be noted that the name cannot be
identical or close to the name of any other existing company. Then he must
decide the signatories to the memorandum of association. These signatories
would be the first official director of the company. For this, their written
consent is mandatory. In a public company, at least 7 signatories must sign the
memorandum whereas, in a private company, only two members are enough.
Then the
promoter appoints certain professionals who are going to help him in the
preparation and the submission of the important documents to the ROC.
INCORPORATION
Incorporation
basically means the legal registration of the company and receiving a
‘certificate of incorporation’. For this, the promoter makes an application for
incorporation to ROC along with other mandatory documents. These other documents
include the articles of association, memorandum of association, statement of
authorized capital, address of the office of the company and the written
consent of the signatories.
Along with
the application for incorporation, a registration fee has to be submitted and
the amount depends upon the amount of the authorized capital.
The ROC then
analyses your application thoroughly and if they are satisfied with all the
legalities and paperwork then they officially declare the company as a
corporate body under the Companies Act, 2013 after which you receive the certificate
of incorporation.
CAPITAL
SUBSCRIPTION
The
formation of a private company was done in the last step. This step is required
for the formation of a public company. After the above two steps, the promoter
must raise funds for his company which can be done through issuing shares and
debentures to the general public. For this, he must take the approval of the
Securities and Exchange Board of India (SEBI).
After this,
a prospectus is to be filed under the ROC. A prospectus is an official document
that invites the public to subscribe to the shares and debentures offered by
the company.
This task is
quite difficult. Therefore, some officials are appointed to ease the process. A
broker is appointed to distribute the prospectus and the application form to
the public and encourage them to buy the shares. A banker is appointed to
collect and deposit all the money from the public. And finally, an underwriter
is appointed if in case the company is not sure of receiving the minimum
subscription from the public. The underwriters are those who will buy the
remaining shares to fulfill minimum subscription requirement.
In order to
issue the shares and debentures to the public, it is necessary for the company
to be officially listed under the stock market. After that, the IPO process can
be started, and shares are allotted to the prospective shareholders.
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