Introduction

A story that sets the stage

• Avtar, a brilliant automobile engineer running his own factory as a sole proprietor, has just developed a new carburettor that can cut a car engine's petrol consumption by 40 percent. Wanting to manufacture it on a large scale, he needs a large amount of money and has to weigh up different forms of organisation for the job.
• He decides against turning his sole proprietorship into a partnership — the funds required are too large and, since the product is new, the risk is high. Instead, he is advised to form a company. Now he wants to know exactly what formalities are involved in forming one — the question this chapter goes on to answer.

Modern business, especially at a medium or large scale, needs very large amounts of money. On top of that, growing competition and a fast-changing technological environment keep pushing up the level of risk that any enterprise must bear. Because the company form of organisation can pool large capital from many people while limiting each member's risk, more and more firms prefer it when they set up sizeable ventures.

• Stages in the formation of a company: the sequence of steps needed from the moment a business idea is first conceived up to the point where a company is legally ready to commence business.
• Promoters: the person or persons who take these steps and shoulder the associated risks are said to be promoting the company; they are called its promoters.

This chapter explains those stages in detail, together with the specific steps that have to be completed at each stage, so that you gain a clear picture of how a company is actually brought into existence.