Chapter 7

Formation of a Company

<<previous page | index | next page>>

7.2.2 Incorporation of a Company

Incorporation of a company is the second stage in the formation of a company. Incorporation refers to the registration of the company as a body corporate under the Companies Act, 1956. Following are the important steps in the incorporation of a company.

i. Approval of name

As a first step for registration of a company, it is necessary to obtain the approval of the Registrar of Companies for the proposed name of the company. A set of three names are suggested in the order of priority. There are some restrictions regarding the selection of names. A company cannot use the name of an existing company. It should not even resemble to the name of an existing company. It should not indicate government patronage. Once the name is approved by the registrar it can be used for further documentation in registration.

ii. Filing of necessary documents

The following important documents are to be prepared and filed with the Registrar of Companies:

i. Memorandum of Association

ii. Articles of Association

iii. Statement of authorized capital

iv. List of directors with their names, addresses, occupation and age.

v. Written consent of directors to act as directors.

vi. Address of the registered office.

vii. A statutory declaration that all the necessary legal requirements for the formation of the company have been complied with.

iii. Payment of fees

Registration fee must be paid along with the filing of documents. The fee will vary according to the registered capital of the business. At present the minimum registration fee is Rs.4,000 for the an authorized capital of Rs.100,000.

iv. Registration

The Registrar of Companies after scrutinizing the documents will enter the name of the company in his register. This will done only if the Registrar is satisfied that all the legal formalities have been properly completed.

v. Certificate of Incorporation

After registration the Registrar will issue a Certificate of Incorporation. From the date of issue of the Certificate of incorporation, the company becomes a district legal entity. The company can open bank account and purchase property in its own name after receiving the Certificate of Incorporation.

7.2.3 Commencement of Business

A private company can commence business immediately after obtaining the certificate of incorporation from the registrar of companies. But the public company must complete additional formalities and obtain a certificate of commencement of business. The following are the documents and formalities before commencement of business.

i. Prospectus or statement in lieu of prospectus

Prospectus is an invitation to the public to take up and pay for the shares of the company. If the company intends to raise share capital without making public offer, there is no need of prospectus. A statement in lieu of prospectus must be filed with the registrar in this case.

ii. Minimum subscription

Minimum subscription is the minimum amount of subscription of shares to be obtained before commencement of business. If the company fails to raise minimum subscription within 120 days of issue, the company cannot commence business. In such a case whatever the amount collected within this period should be returned to the share applicants. Usually the amount of minimum subscription is 90 percent of the shares issued.

iii. Qualification shares

A person who intends to become director of a public company should hold a certain minimum number of shares. This minimum requirement is known a qualification shares. The company must file a declaration to the effect that the all the proposed directors of the company have obtained qualification shares.

iv. Return of allotment

The company is also required to submit a return on allotment to the Registrar. This contains the names and addresses of shareholders and the number of shares allotted to each.

v. Statutory declaration

A statutory declaration from the director of the company or an advocate or company secretary stating that the company has fulfilled all the legal formalities for the registration has been completed, should be submitted to the Registrar.

<<previous page | index | next page>>