The document discusses the key stages in forming a company in India: 1) Promotion, where promoters conceive the business idea and prepare documents; 2) Incorporation, which gives the company a legal identity through registration; 3) Capital subscription, where the company raises funds through share issuance; and 4) Commencement of business, where the company receives approval to begin operations. Promoters play an important role in establishing the company and have both rights and responsibilities regarding disclosure and profits.

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S U B M I T T E D B Y – K A J A L D A H I Y A
S U B M I T T E D T O – M R S . A N J A N A M I S H R A
Overview : FORMATION OF A
COMPANY

2. A Company comes into
existence when a group of
people come together with a
view of forming an association
to exploit the business
opportunities by bringing
together ;men, material, money
and management

3. STAGES IN THE FORMATION OF A
COMPANY

4. 1.PROMOTION OF A COMPANY
It is the first stage in the formation of a company.
In this stage the idea of carrying on a business is
conceived by a person or a group of persons called
promoters. They make detailed investigation about the
workability of the idea, amt of capital required,
operating expense etc .
Before a company an be formed, there must be some
persons who have an intention to form a company and
who take the necessary steps to carry that intention
into operation. Such persons are called promoters.
The promoter is the person who brings a company into
existence.

6. PROMOTERS
 “A promoter is the one, who undertakes to form a
company with reference to a given object and sets it
going and takes the necessary steps to accomplish
that purpose.”
- Justice C.J. Cockburn

7. Characteristics Of Promoter
 A promoter conceives an idea for the setting-up a
business.
 He makes preliminary investigations and ensures about
the future prospects of the business.
 He brings together various persons who agree to
associate with him and share the business
responsibilities.
 He prepares various documents and gets the company
incorporated.
 He raises the required finances and gets the company
going.

8. FUNCTIONS OF PROMOTER
 To Conceive Business Idea
 To make Detailed Investigation
 To Organize the Resources
 To Obtain the Consent of Persons Willing to Act as
First Directors
 To Decide about the Name of the Company
 To Get the Necessary Documents Prepared
 To Arrange for Filling of the Necessary Documents
with the Registrar

9. :
Legal Position of Promoter
 The company law has not given any legal status to
promoters. A promoter is neither an agent nor a trustee of
the company because it is a non entity before incorporation.
Some legal cases have tried to specify the status of a
promoter. He stands in a fiduciary position.
 The promoter moulds and creates the company and under
his supervision it comes into existence. It is the duty of the
promoter to get maximum benefits for the company. He
should not get secret profits from the company. If he sells
his property to company, then he should explain his
interest in such property.

10. Liabilities of a Promoter
 A promoter should not make secret profits out of the dealings of the
company.
 He must deposit with the company all money received on its behalf.
 He must exercise due diligence and care while performing the work of a
promoter.
 He will be personally responsible for all the preliminary contracts till all
these are approved by the company.
 He will compensate any person who made investments in the company
on the basis of untrue statements made by the promoter.

11. Rights of Promoter:
 1. Right of indemnity:

The promoters are severally and jointly liable for any
false statement given in the prospects therefore when
more than one person act as the promoters of the
company, one promoter can claim against another
promoter for the compensation and damages paid by
him.

12.  (2) Right to Receive the legitimate Preliminary
expenses
 He has to the right to recover the legitimate expenses which
had spend during the process of the company in cost of
advertisement, fees for the solicitor etc. The right to receive
the preliminary expenses is not a contractual right. It
depends upon the discretion of the directors of the company
 (3) Right to receive the remuneration
 The right to receive remuneration is not a contractual right.
It completely depends on the company to make sure to
provide the same or not. n some cases, articles of the
company provide for the directors paying a specified
amount to promoters for their services but this does not
give the promoters any contractual right to sue the company

13. Duties Of Promoter
 To disclose private arrangements
 To disclose secret profits
 To disclose all material facts
 To disclose the profit which he has
earned as trustee
 To show goodwill towards future
shareholders

14. Types of Promoters
 Financial promoters
Financial institutions, like industrial banks, or investment banks may take up the
promotion of a company with a view to finding opportunities for investment,
Professional promoters
 There are firms which specialize in company promotion, including its flotation,
incorporation, and before handing it over to the shareholders or their
representatives for the company.
Entrepreneur promoters
 They conceive the idea of a new business unit, do the groundwork to establish it and
may subsequently become a part of the management. They are both promoters and
entrepreneurs.
Occasional promoters
 They are not engaged in promotion work on a regular basis. They take up the
promotion of some company and once it is over they go to their original profession.
For instance, engineers, lawyers etc. may float some companies. These promoters
take interest in floating some companies.

15. 2. INCORPORATION
 Incorporation or registration is the second stage in
the formation of a company. It is the registration that
brings a company into existence. A company is
properly constituted only when it is duly registered
under the Act and a Certificate of Incorporation has
been obtained from the Registrar of Companies.

16. INCORPORATION OF A COMPANY
(A) Preliminary Activities:
 Before a company is incorporated, the promoter has to take
decision regarding the following:
1. To decide when the registered office of the company located
2. To decide the name of the company
3. To make appointments
4. To get the important documents prepared
5. To send the application to the registrar
(B) Filing of Document with the Registrar:
1. Memorandum of Association
2. Articles of Association
3. I
4. List of directors
5. Written consent of directors
6. Statutory declaration
.

17.  On the registration of memorandum and other
documents, the Registrar will issue a certificate
known as the Certificate of Incorporation certifying
under his hand that the company is incorporated
and, in the case of a limited company that the
company is limited
Certificate of Incorporation

18. EFFECTS OF INCORPORATION
 The certificate of incorporation is conclusive
evidence of the fact that:
 The company is properly incorporated and duly
registered;
 The terms of the Memorandum and Articles are within
the law;
 All requirements of the Act in respect of registration
have been complied with;
 A private company can start its business after getting
the certificate of incorporation;
 With the issue of certificate, the company takes
birth with a separate legal entity.

19. 3. CAPITAL SUBSCRIPTION
 After incorporation a company can raise capital by
issuing shares. A private company cannot issue shares to
public.
 In case of public company a copy of prospectus is filed
with the registrar and it will be issued to the public.
Those who are intended in purchasing share are required
to send their application money to company's banker.
 On the last date fixed for the receipt of application if the
company has received application equal to minimum
subscription the directors will start with allotment of
shares

20. 4. COMMENCEMENT OF BUSINESS
 This is the fourth stage of Formation of a
Company and it means, at this stage, the company
gets a legal approval certificate from the registrar
office for the purpose of running a specific company
or business. When a company’s legal documents are
verified by any registrar under section 149(1) and
section 149(2), then the company gets a legal
certificate to run the business.
 This legal certificate is also known as “Certificate
of commencement of Business“.

21. CONCLUSION
 Formation of a Company is a procedure of
incorporation of a company. It includes various
factors and legal documents for the purpose of
incorporation. At the time of establishment, there
are two documents play a very important role. Those
documents are Memorandum of Association (MoA)
and Articles of Association (AoA).
 Thus, the Formation of a Company in
Company Law includes various major stages for
fulfilling the procedure of incorporation. Without
these stages, the company cannot be formed and run.