Steps in Formation of a Company

The formation of a company is a structured process that transforms an initial idea into a legally recognised entity. This process involves multiple stages, ensuring the business complies with the regulations outlined in the Companies Act, 2013. Understanding the stages of formation of a company is crucial for aspiring entrepreneurs, students, and parents guiding them through the basics of business creation.

Below, we explore the process of formation of a company in detail, covering all key steps and the significance of each stage.

Stages of Formation Of Company In Company Law

The entire process of formation of the company can be categorised into four major phases:

1. Promotion Stage

2. Registration Stage

3. Incorporation Stage

4. Commencement of Business Stage

Let’s break these steps down for better understanding of Procedure For Formation Of Company.

1. Promotion Stage

The promotion stage marks the initial phase in the formation of a company. This is where an idea evolves into an actionable business plan.

Key Steps in the Promotion Stage:

• Identifying a Business Opportunity: Evaluate market demands and decide on the type of business to establish.

• Feasibility Study: Conduct a thorough analysis of economic, technical, and legal aspects to ensure the viability of the business idea.

• Role of Promoters: Promoters play a crucial role in executing the idea by securing the required capital, preparing essential documents, and taking the initial steps to establish the business.

2. Registration Stage

The registration stage is when the company becomes a legally recognised entity under the Companies Act, 2013.

Steps Involved in the Registration Stage:

• Memorandum of Association (MoA): Founders must prepare and sign the MoA, which outlines the company’s objectives. Public companies require a minimum of seven signatories, while private companies need at least two.

• Articles of Association (AoA): This document defines the internal rules of the company. All MoA signatories must also sign the AoA.

• List of Directors: Submit a complete list of the company’s directors to the Registrar of Companies (RoC).

• Consent of Directors: Directors must provide written consent to act in their roles, which is then submitted to the RoC.

• Registered Office Address: Notify the RoC of the company’s official address.

• Statutory Declaration: A declaration by a qualified professional (advocate, secretary, or director) stating that all requirements have been fulfilled must be filed with the RoC.

When all documents are in order, the RoC issues a Certificate of Incorporation, officially bringing the company into existence.

3. Incorporation Stage

The incorporation stage validates the company’s formation through the issuance of a Certificate of Incorporation. This certificate acts as proof that the company is legally established.

Key Points to Note:

• A private company can commence business activities immediately after receiving the Certificate of Incorporation.

• A public company, however, needs to proceed to the next stage: Commencement of Business.

4. Commencement of Business Stage

The commencement of business stage is critical for public companies, as they require an additional certificate to start operations.

Steps for Commencement:

• Issuance of Prospectus: Public companies issue a prospectus inviting the public to subscribe to shares for raising capital.

• Minimum Subscription Requirement: The company must ensure the minimum required shares are subscribed to and collect the corresponding funds.

• Registrar Verification: Submit proof of subscription and collected funds to the RoC.

• Certificate of Commencement of Business: Once satisfied, the RoC issues this certificate, allowing the company to officially begin its operations.

Key Differences in Formation of Private and Public Companies

Conclusion

The formation of a company under the Companies Act, 2013 involves a systematic process, ensuring compliance with legal and financial regulations. By understanding these stages, students and aspiring entrepreneurs can gain valuable insights into starting a business effectively. Whether it’s the promotion stage, the registration stage, or the final step of commencing business, each phase is essential for establishing a successful company.