Formation of a Company

Forming a company is a complex activity because it involves completing several legal formalities and procedures laid down under company law. To understand the process clearly, the formalities can be grouped into three distinct stages:

• 1. Promotion — conceiving the business idea, testing whether it is worth pursuing, and taking the initiative to get a company registered.
• 2. Incorporation — applying to the Registrar of Companies with the required documents and obtaining the Certificate of Incorporation, which brings the company legally into existence.
• 3. Capital Subscription — raising the required funds from the public by issuing securities (shares/debentures) after issuing a prospectus.

Which stages apply to which company

• These three stages describe the formation of any kind of company in a general sense.
• A private company is prohibited from raising funds from the public. Therefore it does not need to issue a prospectus and need not complete the formality of minimum subscription. In effect, a private company can begin operations after just two stages — promotion and incorporation.
• A public company that wants to raise money from the public must additionally go through the capital subscription stage.

Key documents you will meet in this chapter

• Memorandum of Association (MOA): the company's most important document; it defines the objectives of the company and governs its relationship with the outside world.
• Articles of Association (AOA): the rules for the internal management of the company; they are subordinate to the Memorandum. …