Summary

A private company goes through two stages of formation — promotion and incorporation — while a public company must additionally complete the capital subscription stage before it can begin operations.

1. Promotion

• Begins with a potential business idea. Feasibility studies — technical, financial and economic — are conducted to judge whether the idea can be profitably exploited. Only on favourable results do promoters decide to form the company.
• Promoters are the persons who conceive the idea, decide to form the company, take the necessary steps, and assume the associated risks.
• Steps in promotion: (i) approval of the company's name from the Registrar of Companies; (ii) fixing the signatories to the Memorandum of Association; (iii) appointing professionals to assist; (iv) preparing the documents needed for registration.
• Necessary documents: (a) Memorandum of Association; (b) Articles of Association; (c) consent of proposed directors; (d) agreement, if any, with the proposed managing or whole-time director; (e) statutory declaration.

2. Incorporation

• The promoters apply to the Registrar of Companies with the necessary documents and the registration fee. After due scrutiny, the Registrar issues the Certificate of Incorporation, which is conclusive evidence of the legal existence of the company.

3. Capital Subscription

• A public company raising funds from the public takes these steps: (i) obtain SEBI approval; (ii) file a copy of the prospectus with the Registrar; (iii) appoint brokers, bankers and underwriters; (iv) ensure the minimum subscription is received; (v) apply for listing of the securities; (vi) refund or adjust excess application money; (vii) issue allotment letters to successful applicants; and (viii) file the return of allotment with the Registrar (ROC). …