Overview: Stages Of Formation Of A Company
Are you an entrepreneur who is considering setting up your business in India?
If yes, then you should know that every step of the process, from initial promotion to official registration and finally starting operations, is crucial to the prosperity and longevity of your business. Recognizing the importance of these preparatory measures shows that you are dedicated to careful planning and strategic vision, which are critical attributes in negotiating the challenges of entrepreneurship.
If you are considering registering a company in India, then you must know that there are numerous stages of formation of a company, such as those listed below:
- Promotion of the company
- Registration of the company
- Certificate of incorporation
- Commencement of the business
Lets briefly discuss each stages of formation of a company.
1. Promotion Of The Company
One of the first stages of formation of a company is the promotion of the company. We can say that promotion is the entire procedure by which a company is brought into existence. During this stage, promoters assist in turning the idea of launching a company into reality. This stage of formation of a company entails coming up with a business idea and taking the initiative to set up the firm to give the potential commercial opportunity a concrete form. In addition to seeing business potential, the promoters examine the firm’s prospects and assemble the personnel, tools, materials, and funding required to launch the business.
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.
2. Registration of The Company
After promotion, the second stage of formation of a company involves the registration of the firm. After registration, the firm legally comes into existence. A firm in India is registered as per the Companies Act, 2013.
In order to register a company in India, the following documents may be needed:
- 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 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.
- Payment of Fee: Along with document mentioned above, required fees have to be paid for the registration of the company.
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.
3. Certificate of Incorporation
Once the company is registered, a certificate of incorporation is acquired by the Registrar of Companies. After acquiring the certificate of incorporation, the firm is legally incorporated as per the Companies Act and is further allowed to engage in contracts.
4. 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 it 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 Initial Public Offering 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, 2013. 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. There are 2 types of Stock Exchanges in India – Bombay Stock Exchange (BSE) and National Stock Exchange (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 are 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 the 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.
FAQ’s
Company registration is the word describing the process of incorporating an organization, whereas incorporation represents the process of creating a new corporate model where that company becomes a recognized entity.
The steps needed in starting a business are Capital subscription, promotion, the commencement of business, and incorporation.
It starts with an individual or a group of people imagining a potential market opportunity and then taking the initiative to put it into action by establishing a firm. Organizers of a firm are individuals or groups of individuals who go on to create a company.
- Registration in India
Shareholder contract - Founders’ covenant.
- Incorporation certificate.
- No objection statement (NOC)
- A business PAN card.
- TIN code.
- A confidentiality agreement.
No matter how big your final company goals are, you may still launch a business in your spare time while juggling your other obligations.
