Question

Explain the procedure for formation of a company.

Answer 1

The formation of a company is a lengthy process. For convenience the whole process of company formation may be divided into the following four stages:

Stage # 1. Promotion Stage:

Promotion is the first stage in the formation of a company. The term ‘Promotion’ refers to the aggregate of activities designed to bring into being an enterprise to operate a business. It presupposes the technical processing of a commercial proposition with reference to its potential profitability. The meaning of promotion and the steps to be taken in promoting a business are discussed in brief here.

Stage # 2. Incorporation or Registration Stage:

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.

Stage # 3. Capital Subscription Stage:

A private company or a public company not having share capital can commence business immediately on its incorporation. As such ‘capital subscription stage’ and ‘commencement of business stage’ are relevant only in the case of a public company having a share capital. Such a company has to pass through these additional two stages before it can commence business.

Stage # 4. Commencement of Business Stage:

After getting the certificate of incorporation, a private company can start its business. A public company can start its business only after getting a’ certificate of commencement of business’.