CHAPTER - 3
FORMATION OF A COMPANY
FORMATION OF A COMPANY
A joint stock company does not come into existence on
its own.
Planned action and conscious efforts are required for its
formation.
It involves several legal formalities.
FORMATION OF A COMPANY
Formation of company involves the
following stages.
1)
Promotion
2)
Incorporation
3)
Floatation or capital subscription
4)
Commencement of business
Meaning of promotion
The term promotion refers to the sum
total of activities by which a business
enterprise is brought into existence.
Definition
According to C.W Gerstenberg,
“ Promotion is the discovery of business
opportunities and the subsequent organization
of funds, property and management ability into
business concern for the purpose of making
profit there from”

A Joint stock company may be promoted
in any of the following two ways:
1)
2)
By converting an existing partnership or
proprietorship firm into a joint stock
company
By setting up a new company altogether to
take up a new line of business.
STAGES IN PROMOTION
1)
Discovery of business idea:
It begins with the conception of an idea
or business opportunity.
New business
or
Take over existing one.
STAGES IN PROMOTION
2 Detailed investigation:
Once the idea has been conceived thorough
investigation made to establish the soundness of the
proposition in terms of technical feasibility and
commercial viability.
Study market demand, availability of
rawmaterials,machinery etc..
STAGES IN PROMOTION
After investigation is completed the findings are
presented in a type written report, known as project
report or feasibility report.
The report helps in judging whether proposition will
yield the fair return on the investment and for the
risks undertaken.
It is also helpful in procuring licenses and finance
from governmental agencies.
STAGES IN PROMOTION
The report contains the data's collected,
estimates of costs and revenue, experts
opinion and recommendations,etc…
STAGES IN PROMOTION
3 Assembling:
once the promoter is convinced, he takes
steps to give the idea a practical shape.
He persuade other persons to join hands with
him and gets the invention made
He may also acquire some patent rights.
STAGES IN PROMOTION
He selects the factory site, decides about the plant
and machinery and contacts suppliers of raw
materials,etc…
Assembling also involves making contracts for the
purchase of
materials,building,machinary,tools,capital.etc..
STAGES IN PROMOTION
4 Financing of preposition:
At this stage, financial plans are prepared with
respect to capitalisation,capital structure,
time and method of capital issue,etc.
The financial requirements are estimated and
the sources from which the money will come
are decided.
STAGES IN PROMOTION
The Business preposition is presented to
the public in the form of a “prospectus”
In order to persuade them that it
deserves their financial support.
Agreements are made with underwriters.
stock brokers,bankers,etc..
Structure of Formation
Formation of a company
Promotion
Discovery of
ideas
Incorporation
Memorandum
Floatation
Permission
From SEBI
Appointments
Articles
Detailed
Consent of
investigation
Issue
directors
prospectus
Assembling Undertaking to take
Qualification shares Application for
listing
Financing
Statutory
declaration
Allotment
commencement
Of business
Copy of prospectus
Return of
allotment
Minimum
subscription
Qualification
shares
Permission of
listing