Company Formation

1. Promotion
2. Incorporation
3. Capital Subscription
4. Commencement of business
 Formation of Company
In the formation of public company having share
capital, mainly four stages are involved. Those are;
1. Promotion of company
2. Incorporation
3. Capital Subscription
4. Commencement of business
To form private company and public company
not having any share capital, first two stages are
sufficient because, a private limited company can start
its business immediately after securing the certificate of
incorporation from Registrar of companies.
 Promotion of Company
The person or persons who undertakes
responsibility to bring the company into existence are
called as ‘Promoters’. Promotion involves discovery of
the specific business opportunity. According to Justice
Bowen, “The term promotion is a term, not of law, but
of business, usefully summing up in a single word a
number of business operations familiar to commercial
world, by which a company is generally brought into
existence”.
 Promotion of Company
So in simple words we can put promotion as,
“The different steps which are taken to persuade a
number of persons to come together for the achievement
of a common objective through the company form of
organisation”. From the above discussion, following
steps in promotion are ascertain:
1. Discovery of an Idea
2. Detailed Investigation
3. Assembling
4. Financing the Proposition
 Incorporation
This is second stage in formation of company.
After taking all preliminary actions for registration, an
application along with necessary documents, stamp
duty, filing fees etc. has to be made to the Registrar for
issue of certificate of incorporation. The Registrar will
scrutinize the documents and if satisfied will enter the
name of the company in the register and will issue the
company certificate called Certificate of Incorporation.
As, by this certificate the company came into existence
as a separate legal entity, this certificate is also called
birth certificate of company.
 Incorporation

To get Certificate of Incorporation, promoters have

to submit following documents to Registrar.
1. The Memorandum of Association to which at least 7
persons have subscribed, their names and each one
of them has taken at least one share.
2. The Articles of Association similarly signed except
where Table ‘A’ attached to the Companies Act,
1956, has been adopted as the Company’s Articles.
3. The address of the registered office of the company.
 Incorporation
4. A list of directors with their names, addresses and
occupations.
5. Consent in writing of the directors to act as
directors.
6. An undertaking of directors to take and pay for
qualification shares.
7. A statutory declaration by an advocate or an
attorney or chartered accountant practicing in India.
 Capital Subscription
In this stage, company has to make arrangements
for obtaining the necessary capital for company. For this
purpose board meeting has to be convey immediately
after getting Certificate of Incorporation to deal with
following.
1.Appointment or confirmation of the appointment of secretary.
2.Adoption of preliminary contracts.
3.Appointment of bankers, brokers, solicitors, auditors etc.
4.Adoption of draft prospectus.
5.Listing shares on Stock Exchange.
6.Adoption of underwriting contracts.
 Commencement of Business
To obtain this certificate from Registrar of companies,
following conditions must be fulfilled.
1. A prospectus must be filed with Registrar of companies.
2. The number of shares allotted is not less than the
minimum subscription mentioned in the prospectus.
3. The directors have taken up and paid for their qualification
shares.
4. The declaration that no money is liable to become
refundable to applicants for shares.
5. A declaration by one of the directors or the secretary to the
effect that all the conditions regarding commencement of
the business have been compiled with.
 Minimum Subscription

The term refers to “minimum amount which in

the opinion of the directors or signatories to the
memorandum, is required to commence the business”.
The main purpose of this amount is to ensure that
the company starts business with adequate capital. The
amount of minimum subscription must be stated in
Articles of Association.
 Minimum Subscription
The amount must be sufficient to provide for;
1. Purchase price of any property bought or to be
bought.
2. Preliminary expenses & commission payable by
company.
3. The repayment of sums borrowed to provide for
the foregoing.
4. Working capital
5. Any other expenditure
 Declaration of Compliance
After allotting shares for an amount not less than
minimum subscription specified in prospectus and
complying with the requirements of Section 149 of the
Companies Act, the secretary or one of the directors has
to submit declaration to the Registrar stating that all the
requirements of Section 149 have been compiled .
However, there is no need for such a declaration in the
case of a private company or company limited by
guarantee.
 Specimen Form of Declaration
No. of Company Filling Fee Rs.5
The Companies Act, 1956
Declaration of compliance with the provisions of Section 149(1)(a), (b) & (c) of the Companies Act,
1956
Pursuant to Section 149 (1) (d)………
(To be used by a Company which issued a prospectus on or with reference to its formation.)

Name of company……………………………. Limited

Presented by…………………………………………...
I …………..of …………being a Director/the Secretary of ……… Limited do solemnly and
sincerely declare:

1] That the amount of the share capital of the Company offered to the public for subscription.
2] That the amount stated in the Prospectus as the minimum amount which, in the opinion of the
Board of Directors, must be raised by the issue of share capital in order to provide for the matters
specified in clause 5 of Schedule II of the Companies Act, 1956, is Rs………..
 Specimen Form of Declaration
3] That shares held subject to the payment of the whole amount thereof in cash have been allotted to
the amount of Rs…………
4] That every Director of the company has paid to the Company on each of the shares taken or
contracted to be taken by him, and for which he is liable to pay in proportion equal to the amount
payable on application and allotment on the shares offered for public subscription.
5] That no money is, or may become, liable to be repaid to applicants for any shares which have been
offered by public subscription by reason of any failure to apply for, or to obtain, permission for the
shares to be dealt in on any recognised Stock Exchange.
6] The statement in paragraphs………………… above are true to my knowledge and those in the
remaining paragraphs are true to the best of my information and belief.

Signature
Designation: Directors/Secretary
Dated the ………………… Day of 19…..

Note: Under Section 149, as amended in 1998, the declaration of compliance can also be signed by ‘a secretary in whole
practice’ where the company has not appointed a secretary.
 Certificate of Commencement
After receiving the declaration of compliance
with the provision of Sec. 149 from the secretary or
directors along with the required filing fees, Registrar
will issue the Certificate of Commencement of Business
if he satisfied. From the date of this certificate, company
is entitled to commence its business and also
empowered to exercise its borrowing powers.
 Certificate of Commencement of Business
I hereby certify that……………..Ltd. Of …………which was incorporated
under the Companies Act, 1956, on the …………day of ………….19….and which has
this day filed a statutory declaration in the prescribed form that the conditions of
Section 149 have been complied with, is entitled to commence business.
Given under my hand at ……………….. This day of ……….. One thousand
nine hundred and…………..

Registrar of Companies
(Seal of the Registrar) …………………(State)
 Duties of Secretary in Formation of Company
While looking at all four steps of formation of
company. It is clearly observed that at every stage
secretary has to perform certain task. For better
understanding of the point. Let us break up duties of
Secretary in to two parts.
1. Duties before incorporation:
2. Duties after incorporation
 Duties of Secretary in Formation of Company
1. Duties before incorporation:
• Helping promoters in investigating proposed venture.
• Securing opinion of the experts if required.
• To attain all preliminary meetings, keep record of
proceedings.
• Helping promoters to drawing up financial plan.
• To secure approval of the Registrar.
• To help promoters in the preparation of preliminary
contracts.
• To follow guidelines issued by SEBI.
• To collect the certificate of Incorporation from Registrar.
 Duties of Secretary in Formation of Company
2. Duties after incorporation: As to get certificate of
incorporation is just like half of the work is done.
Secretary has to perform following duties after
incorporation stage. Some of them listed below:

• To prepare draft of Prospectus.

• To make himself thoroughly conversant with the contents of
Memorandum of Association & Articles of Association.
• To call first board meeting for getting approval of draft
prospectus, preliminary contracts.
 Duties of Secretary in Formation of Company
• To arrange for the listing of securities of the company.
• To arrange for the bankers to receive the application money
from the intending investors.
• To issue letters of allotment/regret to applicants as per the
decision of the board.
• To collect the certificate of commencement from the
Registrar.