Business Studies Video Notes

Formation of a
Company

Class 11ᵗʰ
Class 11ᵗʰ
Formation Of A Company Didn’t understand? Watch
the video (Click Here)
Formation of a company is not a simple process like in case of sole proprietorship
or partnership. It is a complex and lengthy process, which involves a number of
legal formalities and procedures.The formation of a company involves the
following stages;
Promotion
Incorporation
Capital Subscription

Promotion of a Company Didn’t understand? Watch

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Promotion is the first stage in the formation of a company. It includes the steps
like identification of a business opportunity, analysis of its prospects and taking
steps to implement it for the formation of a company.
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Functions of a Promoter(Steps in Promotion) the video (Click Here)
Identification of Business Opportunity: The process of formation of a company
begins when promoter identifies a business opportunity or an idea. The promoter
also undertakes preliminary analysis of the idea in terms of profitability, risk
involved, resources required, etc.
Feasibility Studies: It may not be feasible or profitable to convert all identified
business opportunities into real projects. Depending upon the nature of project
the following feasibility studies may be undertaken:
Technical Feasibility
Financial Feasibility
Economic Feasibility
Fixing up Signatories to the Memorandum of Association: The promoters have
to decide about the people who will be signing the Memorandum of Association of
the proposed company. Usually, the people who sign the memorandum (known as
signatories) are also the first Directors of the Company.
Appointment of Professionals: The promoters appoint professionals such as
mercantile bankers, auditors, etc. to assist in preparation and submission of
necessary documents to the Registrar of Companies.
Preparation of Necessary Documents: The promoter takes up steps to prepare
legal documents as they have to be submitted to the Registrar for getting the
company registered.
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Important Documents Required the video (Click Here)

The important documents required to be submitted to the Registrar are:

Memorandum of Association
Articles of Association
Consent of Proposed Directors
Agreement
Statutory Declaration
 Memorandum of Association -Memorandum of Association (MoA) is the principal
document of the company. It has been described as the 'Charter of the Company'
as it contains the powers and objectives of the company, defines the scope of its
operations and its relations with the investors and outside world. The Memorandum
of a company should be formulated as mentioned in the Tables A, B, C, D & E under
Schedule 1 of the Companies Act.

Respective Forms for Memorandum of Association (MOA)

1 Table A MOA of a Company Limited by Shares

2 Table B MOA of a Company Limited by Guarantee

and NOT having Share Capital

Table C MOA of a Company Limited by Guarantee and

3
having Share Capital

MOA of an Unlimited Company and NOT having

4 Table D
Share Capital
MOA of an Unlimited Company and having
5 Table E
Share Capital
Contents of Memorandum of Association:-
Name Clause
Registered Office Clause
Objects Clause
Study With Full Concentration
Liability Clause
and be a Business Man
Capital Clause
Association Clause

Articles of Association-The Articles of Association is the second important

document, which contains the rules and regulations for the internal management of
the company.

Respective Forms for Memorandum of Association (MOA)

1 Table F AOA of a Company Limited by Shares

AOA of a Company Limited by Guarantee

2 Table G
and having Share Capital
AOA of a Company Limited by Guarantee
3 Table H
and NOT having Share Capital
 AOA of an Unlimited Company and having Share
4 Table I
Capital

AOA of an Unlimited Company and NOT having

5 Table J
Share Capital

Contents of Memorandum of Association:-

Basis Memorandum of Association Article of Association

They indicate how the

It defines the objects for
Objectives objectives of the company
which the company is formed.
are to be achieved.

This is a subsidiary
This is the main document of document and is subordinate
Position the company and is subordinate to both the Memorandum of
to the Companies Act. Association and the
Companies Act.

It is not compulsory for a

The preparation and filing of
Necessity public limited company to
Memorandum is compulsory.
file Articles.

It is a difficult and lengthy Articles can be easily

Alteration process and also requires altered by passing a special
approval of the government. resolution.

It defines the relationship It defines the relationship

Relationship between company and the between the members and
outsiders. the management.

1. Consent of Proposed Directors-A written consent of proposed directors is required

to confirm that they agree to act in that capacity and undertake to buy and pay for
qualification shares.
2. Agreement-If the company proposes to enter into an agreement with any individual
for appointing him then such agreement is also to be submitted to the Registrar.
3. Statutory Declaration-A statutory declaration is to be submitted to the Registrar
stating that all the legal requirements of the Companies Act in regard to
incorporation have been complied with.
 4.Payment of Fee-Along with the above documents, filing and registration fees has
to be paid for the registration of the company.

Incorporation of the Company

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Incorporation means registration of the company under the Companies Act, 2013 or any
previous Company Law.
Filing of Documents - Promoters make an application to the Registrar for the
incorporation of the company. The application must be accompanied with following
documents:
Memorandum of Association
Articles of Association
Written consent
Agreement
Copy of the Registrar's letter approving the company's name.
Statutory Declaration
Notice of the exact address of the registered office
Payment of Fees - Along with the above documents, necessary filing fees and
registration fees at the prescribed rates are also to be paid.
Certificate of Incorporation - The Registrar scrutinises all the documents and if he
is satisfied about the completion of formalities for registration, he issues a
Certificate of Incorporation.

Capital Subscription
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Minimum Subscription - Before commencing the business, every public limited

company must raise minimum subscription in order to avoid shortage of funds.
Application to Stock Exchange - A public company must get itself listed or quoted
in a stock exchange before it starts selling the securities to the public.
Allotment of Shares - After getting the name listed in the stock exchange, the
company makes allotment of shares as per guidelines of SEBI.

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