Ch-7 - PART-II Corporate Organisation, Finance and Trade 1...

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P ART -II Corporate Organisation, Finance and Trade
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C HAPTER 7 F ORMATION OF A C OMPANY LEARNING OBJECTIVES After studying this chapter, you should be able to: specify the important stages in the formation of a company; describe the steps involved in each stage of company formation; specify the documents to be submitted to the registrar of companies; and state the need of certificate of incorporation and certificate to commence business.
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161 FORMATION OF A COMPANY 7.1 I NTRODUCTION Modern day business requires large amount of money. Also, due to increasing competition and fast changing technological environment, the element of risk is increasing. As a result, the company form of organisation is being preferred by more and more business firms, particularly for setting up medium and large sized organisations. The steps which are required from the time a business idea originates to the time, a company is legally ready to commence business are referred to as stages in the formation of a company. Those who are taking these steps and the associated risks are promoting a company and are called its promoters. The present chapter describes in some details the stages in the formation of a company and also the steps required to be taken in each stage so that a fair idea about these aspects can be made. 7.2 F ORMATION OF A C OMPANY As discussed in an earlier chapter on ‘Forms of organisations’, formation of a company is a complex activity involving completion of a lot of legal formalities and procedures. To fully understand the process one can divide the formalities into four distinct stages, which are: (i) Promotion; (ii) Incorporation; (iii) Subscription of capital; and (iv) Commencement of business. It may, however, be noted that these stages are appropriate from the point of view of formation of a public limited company. As far as the private limited companies are concerned only the first two stages mentioned above are appropriate. In other words, a private company can start its business immediately after obtaining the certificate of incorporation. As it is prohibited to raise funds from public, it does not need to issue a prospectus and complete the formality of minimum subscription. A public company, on the other hand, goes through the capital subscription stage and then receives the certificate of commencement. Thus, it has to undergo all the four stages. In the next section, we shall discuss these four stages in the formation of a company in some detail. Avtar, a brilliant automobile engineer, has recently developed a new carburettor in his factory which he is running as a sole proprietor. The new carburettor can cut down petrol consumption of a car engine by 40 percent. He is now thinking of producing it on a large scale for which he requires a large amount of money.
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This note was uploaded on 01/19/2012 for the course BUSINESS 3BU taught by Professor Andrewclarke during the Fall '09 term at Central European University.

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Ch-7 - PART-II Corporate Organisation, Finance and Trade 1...

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