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formation of a company

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FORMATION OF COMPANY

STAGES OF FORMATION AND INCORPORATION OF COMPANY

index

WHAT IS A COMPANY:

  1. company - ‘com’ - together, ‘panies’ - bread.

  2. earn their bread together

  3. an association of persons formed for some common purpose.

  4. company for the purpose of some business of profit it is called Joint Stock Company

  5. founders ae called shareholders and liability is usually limited.

  6. definition: 2013: company formed or registered :

    1. voluntary association
    2. contribute money or money’s worth to a common stock.
    3. Employs it in some trade or business
    4. Share the profit and loss arising there from.

FEATURES OF A COMPANY

HEADINGS

  1. Voluntary association: No person can be compelled to become a member or to give up the membership
  2. Registration: ONLY when registered under act 1956
    1. at least seven persons for public company
    2. at least 2 for private company
    3. on incorporation the body gets its own legal entity
  3. Legal entity :
    1. artificial legal entity:
      1. artificial person by law
      2. acquire or dispose property
      3. contract signings
      4. acts through the board of directors
    2. separate entity: distinct from its members
      1. a shareholder can sue the company and be sued by it
      2. property of the company is for the benefit of the company and not for its members.
  4. common seal:
    1. company is large
    2. lots of members
    3. acts through the board of directors
    4. common seal acts as the signature of the artificial person that is a company.
  5. perpetuity: don’t die, legacy carried on.
  6. limited liability:
    1. by shares : shareholder is liable to pay only to the extent of face value of his shares.
    2. by guarantee : liability is limited to the a mount the members decided to contribute to company’s assets while winding up
  7. Separate of Ownership and Management-
    1. Shareholders are owners. They are not the agents of the companies so can’t be bound by the company’s acts
    2. board of directors are management.
  8. large membership: no max limit to the hareholders
  9. specific objectives:
  10. separate property
  11. shares can be transferred

FORMATION OF A COMPANY

  1. process of incorporating a business as a limited company.
  2. This means that the company will become a separate legal entity from its owners
  3. The owners will have limited liability for the company’s debts and liabilities.

The process of forming a company varies from country to country, but there are some general steps that are involved:

  1. Choose a company structure. 
    1. sole proprietorship,
    2. partnership
    3. limited liability company (LLC)
    4. corporation.
  2. Choose a company name. 
    1. unique not already in use by another company.
    2. check with government’s business registration authority.
  3. Register the company. The company registration process involves filing certain documents with the government, such as the
    1. 1.Memorandum of Association
    2. Articles of Association. These documents set out the company’s constitution and rules of operation.
  4. Pay the necessary fees.
  5. Obtain the necessary licenses and permits. 

Benefits of forming a company

There are many benefits to forming a company, including:

  • Limited liability: This is one of the most important benefits of forming a company. Limited liability protects the owners’ personal assets from the company’s debts and liabilities.
  • Professional image: A company is often seen as being more professional and credible than other types of business structures, such as sole proprietorships and partnerships.
  • Easier to raise capital: It is easier to raise capital for a company than for other types of business structures. This is because shares in a company can be freely transferred to other people.
  • Tax benefits: Companies may be able to benefit from certain tax advantages, such as the ability to deduct certain expenses from their taxable income.

INCORPORARTON OF A COMPANY

  1. ITS THE LEGAL PROCESS TO FORM A COMPANY
  2. it involves drafting a list of documents (memorandum and article of association) that list the
    1. primary purpose of the business
    2. its name
    3. location
    4. number of shares
    5. class of stock 3. company act 2013 states that
    6. In case of Private Company at least 2 members are required.
    7. In Public Company, 7 persons are required
    8. In case of “One person Company”, 1 person is required

STEPS IN INCORPORATION OF A COMPANY

  1. Step-1: Filling the proposed name of a Company for approval to the Registrar of the Company (ROC)

    1. sec4(2) Username not available( cant use the same or name identical to another registered company
    2. sec 4(4) : person can make application of registration with prescribed fees
    3. registrar on receipt of application may reserve the name for 20 days.

  2. Step -2: Obtaining Director Identification Number

    1. every individuals to be appointed as Director of the Company shall make an application for allotment of Director Identification Number to the Central Government with fees.

  3. Step- 3 The Company must have to select the name of persons who will act as Director.

  4. Step-4: Drafting of Memorandum of Association (MOA)

    1. The Memorandum of Association is the Constitution of the Company which must contain the basic information of the Company.
    2. The purpose of MOA is to enable the members of the Company, its creditors and the public to know the powers and range of activities of the company
    3. rule 13(2014) Memorandum of Association must be signed by every subscriber/promoter along with address, description, occupation, if any, in the presence of at least one witness.

  5. Step- 5: Drafting of Article of Association (AOA) Article of Association which is an important document explains

    1. The operation of the company
    2. purpose for which Company is incorporated
    3. The information for the process of appointment of Directors
    4. management of the financial record of the Company.

  6. Step-6: Registered Office

    1. 12(2017) the Company on and from 30 days of its incorporation and thereafter must have an office capable of getting the notices and communication.
    2. The Company shall furnish to the Registrar verification of its registered office within a period of 30 days of its incorporation in such a manner as may be prescribed.

  7. Step- 7: Application for Incorporation of a Company

    1. sec 7(2013) an application shall be filed with the Registrar within whose jurisdiction the registered office a Company is proposed to be situated in. 2. forms one man, public, private company submitted with fees.

  8. Step-8: Issue of certificate of Incorporation

    1. The Registrar, on the basis of the documents and information filed, shall register the name of the Company
    2. and issue a certificate of incorporation in the prescribed form as the proposed Company is incorporated under this Act
    3. on this date assign the company a Corporate Identity Number (CIN) which shall be distinct identity for the Company and which shall also be included in the certificate.

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