Introduction:
It is a proposal about the formation of a company. Here, details is given about the documents
required for incorporation of the formation of a company formation of company. This unit also
encompasses the stages of formation of company. The unit discusses the certificate of
incorporation and the certificate of commencement of business. Thus, it will able to understand
through this unit, the essential document for formation of a company, stages, documents required
for incorporation, certificate of incorporation and certificate of commencement of business.
A company is an association or collection of individuals, whether natural persons, legal persons,
or a mixture of both. Company members share a common purpose and unite in order to focus
their various talents and organize their collectively available skills or resources to achieve
specific, declared goals.
According to The Companies Act, 1994, the term company is used to describe an association of a
number of persons, formed the common purpose and they registered according to the law
relating to companies.
Before formation of a company, there must be an idea originated in the mind of a person or
persons to form a company and do the necessary steps to convert it into reality. Such persons are
called as ‘Promoter. An idea has to come to start a business and it should bring into existence.
The promoter is a person who originates the idea to start a business and plan to bring it into
reality. He has very wide powers relating to the formation of the company. He is neither a trustee
nor an agent of the proposed company. The promoter stands in a fiduciary relationship towards
the company.
Promotion of a company:
An idea has come in the mind of certain persons to form a company. So, in this case, we are
called promoter. We will take all necessary steps to form the company. We are association of
persons, originating the scheme for formation of the company; get together the subscribers to the
memorandum, gets the Memorandum and Article, prepared, executed and registered, finds the
bankers, brokers and legal adviser s, find the directors , settle the terms of preliminary contracts
with vendors and agreement with underwriters and makes arrangement for preparation,
advertisement and circulation of the prospectus and placement of the capital.
Registration, Incorporation and Commencement of a Company:
The following aspects has been decided to incorporate and commence its business:
There are the 3 major steps of registration- Step1- Name Clearance, Step 2- Bank account
opening
and bringing
in the
paid up capital and Step
3- Register Company.
Type of company: When Forming a company, it should be kept in mind that which type of
company they would like to form. Companies can be formed either public or private and my
proposal is about to form a public company.
Public company: All companies that are not private companies are entitled as public companies.
In short, public company- (i) is not a private company,
(ii) is a private company which is a subsidiary of a company, which is not a private company.
There should be 7 members to start a public company and we are 15 members. In case of public
company, invitation to subscribe shares and debentures is not prohibited. It may be listed its
shares and debentures to the stock exchange.
a. Company limited by shares: A company that has the liability of its members limited by the
memorandum to the amount, if, any unpaid on the shares respectively held by them is termed as
a company limited by shares. Each share has definite nominal value which the shareholder pays
at a time or by installments. We want to form this type of company because raising the capital of
the company is quite easy as the members are not liable to pay anything more than the fixed
value of the shares.
b. Name of company: We have chosen the name "Leo-Tech" and seek the availability of the
name as a company cannot be registered with the name which is undesirable in the opinion of
Central Government or which is identical with or too nearly resembles the name of an existing
company. The name of the company must end with the word “Limited” in the case of a public
company..The Registrar of Companies shall have to furnish the information regarding the
availability of name. In case the name is undesirable, the registrar may reject the same or ask for
resubmission of the application with new name or calls for further information.
Preparation of Memorandum and Article of Association: Memorandum of Association is the
constitution of the company which specifies the area of the company, within which it can act. It
contains clauses like, name clause, object clause, capital clause, liability clause, subscription
clause and registered office clause. Article of Association is another important document which
contains rules and regulations relating to the internal management of a company.
Printing, Stamping and Singing of the same: The draft of the Memorandum and Articles
Association is prepared and typed. the Memorandum and Articles of Association, draft is vetted
by the Registrar. This helps in avoiding mistakes and unnecessary delay in registration of the
Company. It should be signed separately by the subscribers. It should be stamped.
Additional Documents Required:
A) Consent of director:
As we are forming public limited company having share capital, the director has to give written
consent to act as director.
B) Notice of the Registered office:
The notice of location of the registered office in the memorandum and article of association is
necessary.
C) Particulars of directors:
The persons who are to act as first directors may file their particulars to the Registrar at the time
of registration.
Payment of Registration Fees:
The fee prescribed for registration of company is required to be paid to the Registrar.
Commencement of business:
A public company cannot start its business until it gets certificate of commencement of business
from Registrar of Companies. To get the certificate of commencement of business a public
company has to pass through capital subscription state i.e. raise sufficient capital to commence
its business. There are two ways of raising capitals i.e. from private source and from the public.
Raising of capital:
If a company raises capital from private source i.e. from director’s members and their relations, it
is required to file a statement in lieu of prospectus with the Registrar at least three days before
the allotment of shares. Where the company wishes to invite public in subscription for its shares,
it will have to issue a prospectus after filing a copy of it with the Registrar. On receiving the
minimum subscription, the company can allot shares and thus raise the required capital.
Public company can't start its business from the date of the certificate of incorporation. It will
have to obtain a further document called as ‘certificate to commencement of business’. It is given
by the Registrar of the company
It is different from company to company issuing a prospectus and for a company that does not
issue prospectus.
A. Public company issuing a prospectus:
The public company issue prospectus to subscribe the shares has to fulfill the following
conditions [Section 149(1)]:
a. The shares payable in cash up to the limit of minimum subscription i.e. amount enough for
preliminary expanses, must have been allotted.
b. The amount of qualification shares must be paid by the directors for both as application money
and allotment money.
c. No money is, or may become, liable to be repaid to applicants for any shares or debentures
which have been offered for public subscription by reasons of failure to apply for, or to obtain,
permission for the shares or debentures to be dealt in on any recognized stock exchange.
d. There has been filed with the Registrar a duly verified declaration by one of the directors or
the secretary stating that the entire above requirements are complied and filed with the Registrar
of the company.
B. Public company not issuing prospectus:
If a public company having share capital has not issued a prospectus, Section 149(2) requires that
it shall not commence any business or exercise any borrowing powers unless:
a. it has filed with the Registrar a statement in lieu of prospectus;
b. every director of the company has paid to the company on each of the shares taken or
contracted to be taken by him and for which he is liable to pay in cash , the same proportion as is
payable on application and allotment on the shares payable in cash;
c. There has been filed with the Registrar a duly verified declaration by one of the directors or
the secretary stating that the entire above requirements are complied and filed with the Registrar
of the company.
On fulfillment of all the conditions, the Registrar shall certify that the company is entitled to
commence its business and issue the ‘certificate to commencement of business.’
Thus, The certificate to commence business’ is conclusive evidence in regards to start the
business and fulfillment of all formalities of registration in case of public company.
Powers of directors and management:
A public company must have at least 3 directors and the shareholders constitute a board of
directors annually. The remuneration of directors will be determined by the company in general
meeting from time to time. No directors shall vote on any contract or arrangement in which he is
either directly or indirectly concerned or interested.
Winding Up: ABC Company can wound up or liquidate the company any time voluntarily if
required with the consent of all the ten shareholders/members of the company. The company will
wound up by any terms given in the company Act 1994.
Reference: Fahmida Hasan (2015), Contemporary Laws of Business. Dhaka: Academic Press
and Publishers Library, 1st Edition.