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Learning Objectives At the end of this chapter, you will be able to · Identify the process of forming a company · Identify the process of registration of a company Introduction We have learnt about the meaning, nature and types of company. Today we will learn about how the company is formed. Before a company is formed, certain preliminary steps are to be taken, e.g; whether it should be a private company or a public company; what should be its capital;etc. The process of forming a company can be divided into four distinct stages: a)Promotion b)Registration or incorporation c ) Capital Subscription d) Commencement of Business. As regards a private company, it needs to go through the first two stages only. As soon it receives the certificate of incorpora- tion, it can commence business. This is so because it cannot invite the public to subscribe to its shares and must arrange to raise the capital privately. But Public Company has to go through all of the four stages. We shall now discuss each of these four stages. Promotion This is the first stage in the formation of a company. It refers to the entire process by which a company is brought into existence. It starts with the conceptualization of the birth a company and determination of the purpose for which it is to be formed. Do you know what we mean by promoters? Promoters The persons who conceive the company and invest the initial funds are known as the promoters of the company. The promoters enter into preliminary contracts with vendors and make arrangements for the preparation, advertisement and the circulation of prospectus and placement of capital. However, a person who merely acts in his professional capacity on behalf of the promoter (e.g. lawyer, CA, etc) for drawing up the agreement or other documents or prepares the figures on behalf of the promoter and whom the promoter pays is not a promoter. Pre-Incorporation or Preliminary Contracts The promoters of a company usually enter into contract to acquire some property or right for the company, which is yet to be incorporated. Such contracts are called Pre-Incorporation or Preliminary Contracts. Position of promoters as regards Pre-Incorporation or Preliminary Contracts · Company not bound by pre-incorporation contract English & colonial produce co. ltd Re (1906) 2 ch. 435. A solicitor prepared the memorandum and Articles of association of a company and paid the necessary registration fees and other incidental expenses to obtain of the company. He did this on the instruction of certain persons who later became directors of the company. Held, the company was not liable of his work. · Company can not enforce pre-incorporation contract Natal land & colonization co. Ltd. V. Pauline colliery & Development syndicate ltd., (1904) A.C. 120. The N company agreed with an agent of the P syndicate Ltd before its formation to grant a mining lease to the syndicate. The syndicate was registered and discovered a seam of coal. The company refused to grant the lease. Held, there was no binding contract between the company and the syndicate.
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This note was uploaded on 09/27/2011 for the course BUS 100 taught by Professor Sherry during the Spring '11 term at Faculty of English Commerce Ain Shams University.

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