Overview: Stages of Formation of a Company in India
Planning to start a new company. Know the different stages of formation of a company. Starting and registering a new company in India is a process of its own. It is indeed a complex procedure and has many legal formalities to it. Company formation can be roughly divided into four parts:
- Promotion of the company
- Registration of the company
- Certificate of incorporation
- Commencement of the business
In this article, we will go through in detail all these procedures and you would get to know the exact procedures to follow while forming a new company
Promotion Of The Company
This is the first step that is involved in the stages of formation of a company. We can say that promotion is the entire procedure by which a company is brought into existence. The plan to start a company is brought into reality by this step. business ideas are brought into the frame in this step. The promoter has a very important role at this stage.
Now you might be wondering who is a promoter of the company. Well, the answer to that is, that a promoter is a person who is starting with the stages of formation of a company and is concerned with the promotion of the business. he would be the person who would be pitching in the business idea, finding out ways to fund his business . that person would start the legal procedure for the incorporation of the company. they would appoint the board of directors and bankers for the company.
Now there are mainly 4 types of promoters
- Professional promoters- They promote the company in the initial stage and as soon as the company is incorporated and has a good position in the market the company would be handed over to its shareholders.
- Occasional promoters- As the name suggests are not very active in the promotion of the company. they might be promoters of a few other companies. they are only involved in the important affairs of the company.
- Financial promoters- Venture capitalists would invest money or capital into a venture and hold an important stake in the venture. They hold a strong power over the working of the company.
- Managing agents as promoters of the company- These promoters would float new companies in India. They would get managing agency rights in return.
Registration of The Company
This is the second step involved in the stages of formation of a company. By registration, the company comes into its existence. It is a very important factor that the company has to be registered under the Companies Act.
Many steps have to be followed while registering to accompany according to the Companies Act, 2013. They are as follows:
- Memorandum of Association- The Memorandum of Association has to be signed by the owners of the company. In the case of a public company, a minimum of 7 people has to sign the Memorandum of Association . in the case of a private company, only two people have to sign it at a minimum.
- Articles of Association- It is also required to sign the Article of Association. Those who have signed the Memorandum of Association are required to sign the Articles of Association.
- List of Directors- In the next step the list of directors and their details have to be prepared and it should be filed with the registrar of the companies.
- Written consent of the directors- The directors who have been selected should write a written consent in which they agree to be the director of the company. this has to be filed with the Registrar of Companies.
- \Notice of address of the registered office- In this step the address of the registered office has to be filed.
- Statutory declaration – A statutory declaration has to be made. This statutory declaration has to be made by any advocate of the supreme court or the high court or the person who is the director, secretary, or any practicing chartered accountant or manager of the company. This has to be filed with the Registrar of Companies.
The registrar of the Company would then check all the documents and then would verify them. If they are satisfied with the documents, then they would issue a certificate called the certificate of incorporation.
Certificate of Incorporation
The certificate of incorporation is issued when the Registrar of the company feels satisfied with the document filed in the step mentioned above. The certificate of incorporation is required to show that the company is incorporated according to the 2013 Companies act.
Certificate of Commencement Of business
A private company can start its functioning once it receives the certificate of incorporation. but that is not the case with the public companies. for a public company to start doing its business, it needs a certificate of commencement of business. After a private company has received the certificate of incorporation, it can issue a prospectus by which the public can subscribe to its shares and raise the capital.
It is also required that the public buys the minimum number of shares that are given in the prospectus. After the minimum number of shares has been received, a letter has to be sent to the registrar with bank details showing that the amount has been received. The registrar goes through the documents and if he feels satisfied then the registrar would issue the certificate of commencement of the business. This is the proof that is used to show the commencement of the business.
Process For The Subscription Of Shares
There are seven steps involved in the initial public allotment:
- Hiring financial experts from investment banks
- IPO registration
- SEBI verification
- Appling in the stock exchange
- Public advertisement
- Pricing of IPO
- Allotment of shares
For a private company to issue shares to the public they will have to follow these steps strictly. This process takes a long time to complete. hiring financial experts from the financial bank is one of the crucial steps involved in this process. They would decide about the capital to be raised and other important financial details
Registration for IPO is also an important as well as lengthy process. It involves the procedure of preparation of RHP(red herring prospectus). Submission of that is mandatory as per the companies act. RHP has many components which are involved in the process. Then the company would submit the document to SEBI for their verification.
If they are satisfied with the documents, they would approve the application and the company can announce the date for the issue of the IPO. Then the company would apply in the stock market to issue their shares. In India, there are 2 stock exchanges BSE and NSE. In the next process, the company would advertise its IPO dates to attract investors who are ready to invest in their shares. Then they would price their IPO and then they would allot their shares.
Conclusion
The process of forming the company, its incorporation, and the commencement of the business is indeed very lengthy. The companies have to go through four major steps to bring a business idea into reality and start functioning.
However, the stages of the formation of a company is indeed a difficult process in countries like India and also it includes a lot of legal formalities it would indeed take a good amount of time for the completion of all the processes.
So, it is advisable to obtain assistance from professional experts from OnDemand International to help you in process of formation of a company and to save your time from standing in a long queue.
To reach out to our experts click here and our executive will get in touch with you shortly.