COMPANY LAW
UNIT 2
FORMATION OF A COMPANY
By Sherab Wangdi
1. Steps in Formation of a Company
The formation of a company involves several distinct stages, each requiring meticulous
attention to legal and regulatory requirements. These stages are:
1. Promotion Stage
2. Incorporation Stage
3. Subscription Stage
2. Promotion Stage
2.1 Meaning of Promoter
Definition: A promoter is an individual or a group of individuals who undertake the
responsibility of forming a company and set it up for operations. They perform the
necessary preliminary work, arrange for capital, and ensure that the company is duly
registered.
Role: Promoters conceive the idea of starting a business, conduct feasibility studies,
gather resources, and complete legal formalities required for company formation.
2.2 Position of Promoter
Legal Status: The Companies Act, 2013, does not define promoters explicitly but
recognizes their role and functions. Promoters are not agents or trustees of the company
because the company is not yet incorporated. However, they act in a fiduciary capacity
concerning the company's future shareholders.
Fiduciary Position: Promoters hold a fiduciary position with respect to the company
being formed and its potential shareholders. They must act in good faith, ensure the
accuracy of all information provided, and avoid any conflicts of interest.
, 2.3 Functions of Promoter
Identification of Business Opportunity: Promoters identify viable business
opportunities and prepare a business plan.
Feasibility Studies: Conduct market research, technical and economic feasibility
studies to ascertain the viability of the business.
Assembling Resources: Arrange necessary resources, including financial, human, and
physical resources.
Preliminary Contracts: Enter into contracts necessary for the company’s formation,
such as acquisition of assets and hiring of key personnel.
Name Approval: Select a suitable name for the company and get it approved by the
Registrar of Companies (ROC).
Preparation of Documents: Prepare the necessary documents such as the
Memorandum of Association (MOA) and Articles of Association (AOA).
3. Incorporation Stage
3.1 Meaning of Incorporation
Definition: Incorporation is the legal process of registering a company with the
Registrar of Companies (ROC) to give it a separate legal identity.
Legal Effect: Once incorporated, a company becomes a distinct legal entity separate
from its promoters and shareholders.
3.2 Contents of Memorandum of Association (MOA)
Definition: The MOA is a fundamental document that outlines the company’s
constitution and scope of operations.
Contents:
o Name Clause: Specifies the name of the company with "Limited" as the last
word in the case of a public company and "Private Limited" in the case of a
private company.
o Registered Office Clause: Specifies the state in which the company's registered
office will be situated.
UNIT 2
FORMATION OF A COMPANY
By Sherab Wangdi
1. Steps in Formation of a Company
The formation of a company involves several distinct stages, each requiring meticulous
attention to legal and regulatory requirements. These stages are:
1. Promotion Stage
2. Incorporation Stage
3. Subscription Stage
2. Promotion Stage
2.1 Meaning of Promoter
Definition: A promoter is an individual or a group of individuals who undertake the
responsibility of forming a company and set it up for operations. They perform the
necessary preliminary work, arrange for capital, and ensure that the company is duly
registered.
Role: Promoters conceive the idea of starting a business, conduct feasibility studies,
gather resources, and complete legal formalities required for company formation.
2.2 Position of Promoter
Legal Status: The Companies Act, 2013, does not define promoters explicitly but
recognizes their role and functions. Promoters are not agents or trustees of the company
because the company is not yet incorporated. However, they act in a fiduciary capacity
concerning the company's future shareholders.
Fiduciary Position: Promoters hold a fiduciary position with respect to the company
being formed and its potential shareholders. They must act in good faith, ensure the
accuracy of all information provided, and avoid any conflicts of interest.
, 2.3 Functions of Promoter
Identification of Business Opportunity: Promoters identify viable business
opportunities and prepare a business plan.
Feasibility Studies: Conduct market research, technical and economic feasibility
studies to ascertain the viability of the business.
Assembling Resources: Arrange necessary resources, including financial, human, and
physical resources.
Preliminary Contracts: Enter into contracts necessary for the company’s formation,
such as acquisition of assets and hiring of key personnel.
Name Approval: Select a suitable name for the company and get it approved by the
Registrar of Companies (ROC).
Preparation of Documents: Prepare the necessary documents such as the
Memorandum of Association (MOA) and Articles of Association (AOA).
3. Incorporation Stage
3.1 Meaning of Incorporation
Definition: Incorporation is the legal process of registering a company with the
Registrar of Companies (ROC) to give it a separate legal identity.
Legal Effect: Once incorporated, a company becomes a distinct legal entity separate
from its promoters and shareholders.
3.2 Contents of Memorandum of Association (MOA)
Definition: The MOA is a fundamental document that outlines the company’s
constitution and scope of operations.
Contents:
o Name Clause: Specifies the name of the company with "Limited" as the last
word in the case of a public company and "Private Limited" in the case of a
private company.
o Registered Office Clause: Specifies the state in which the company's registered
office will be situated.
