question_answer

X is interested in the floatation of a company. Briefly discuss the steps he should take.

Answer:

Ans.     Stages in the formation of a company: The formation of a company involves the following four stages:

1. Promotion,

2. Incorporation,

3. Subscription of capital,

4. Commencement of business.

These four stages are relevant for formation of a public limited company. For a private limited company, only the first two stages are needed.

(i)Promotion: Promotion stage includes all the steps right from the identification of a business opportunity till the company is formed. All the tasks during the stage of promotion are performed by a promoter.

(ii) Incorporation of the company: It means registration of the company under Companies Act, 1956. This second stage involves the following steps:

1. Filing of documents: An application to the registrar for incorporation must be accompanied with the following documents:

(i) Memorandum of Association.

(ii) Articles of Association or statement in lieu of the prospectus (in case table A is adopted by Public Limited Company).

(iii) Written consent of proposed directors.

(iv) Agreement (if any) with proposed managing director, manager, etc.

(v) Copy of registrar's letter approving the company's name.

(vi) Statutory declaration.

(vii) Notice of the exact address of the registered office

2. Payment of fees: Along with the above documents, necessary fees is to be paid.

3. Certificate of Incorporation: The registrar issues a certificate of incorporation after being satisfied. Certificate is a conclusive evidence of regularity of incorporation of a company irrespective of any deficiency in its registration.

(iii) Capital subscription: In the stage, following steps are required to be followed by public company to raise funds from the public:

1. SEBI approval;

2. Filling of prospectus or statement in lieu of prospectus;

3. Appointment of bankers, brokers and underwriters;

4. Minimum subscription;

5. Application to stock exchange.

(iv) Commencement of business: In this stage, public company makes an application (along with some documents) to registrar for issue of "Certificate of Commencement of Business". The registrar issues the certificate after being satisfied. The company can start its business activities from the date of issue of the certificate.