Formation and Incorporation of a Company - Frequently Asked Questions

1. Who is promoter?
In the words of Bowen, L.J., "The term promoter is a term not of law but of business, usefully summing up in a single word a number of business operations familiar to the commercial world by which a company is generally brought into existence."
Justice C. Cockburn described a promoter as "one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose."
The promoter is usually an industrial expert who, with the help of a big team of experts, does all the preliminary work necessary before a company can be brought into existence.

2. How many persons are required to form public limited company?
Minimum number of members required to form a public limited company is 7 and maximum is unlimited.

3. When does a company legally come into existence.
A company legally comes into existence when it receives its Certificate of Incorporation. It is issued by the Registrar upon the delivery of:
(1) The Memorandum of Association duly stamped, signed and witnessed;
(2) The Articles of Association duly stamped, duly signed by the signatories of the Memorandum and witnessed;
(3) The agreement if any, which the company proposes to enter into with any individual for the appointment as its managing/whole-time director or manager;
(4) A written consent of the directors to act in that capacity, duly stamped by each director, along with a written undertaking by them to take up the necessary qualification shares;
(5) The notice of address of the registered office of the company;
(6) A statutory declaration stating that all the legal requirements of the Act precedent to incorporation have been complied with.
Alongwith the above documents the necessary filing fees and registrations fees are to be paid and if all these documents are in order, the Registrar will register the company and will issue certificate of incorporation.

4. Meaning of promotion.
The "promotion" is the first stage in the formation of a company. Promotion may be defined as "the discovery of business opportunities and the subsequent organisation of funds, property and managerial ability into a business concern for the purpose of making profits therefrom." Any person who presumes primary responsibility for promotion, is termed a "promoter".

5. Stages in formation of a company.
(1) Promotion
(2) Incorporation or Registration
(3) Capital Subscription
(4) Commencement of Business
Of these stages only the first two are necessary for the formation of a private company, and of a public company not having any share capital. But a public company having a share capital has to pass through all the four stages.

6. What is 'Certificate of Incorporation'?
Certificate of Incorporation is the life giving document of a company. It is issued by the Registrar to the company if the relevant documents are in order. On obtaining this certificate the company becomes a body corporate, with perpetual succession and a common seal. In the famous Peel's case Lord Cairn observed "... when once the certificate of incorporation is given, nothing is to be inquired into as to the regularity of the prior proceedings."

7. What is 'Certificate of Commencement'?
Certificate of Commencement of Business is issued by the Registrar to the company once the required documents are found to be in order. This certificate is conclusive evidence that the company is so entitled. It is after getting this 'Trading Certificate' that the process of the formation of a public company having a share capital is complete and it is now that such a company can start its business and exercise its borrowing powers.

8. What is 'Minimum Subscription'?
The "minimum subscription" is the minimum amount which, in the opinion of directors or the signatories of the memorandum, must be raised by the issue of shares in order to provide the sums in respect of each of the following heads:
(1) the purchase price of any property purchased or to be purchased;
(2) any preliminary expenses payable by the company and any commission (underwriting or otherwise) payable to any person;
(3) the repayment of any moneys borrowed by the company;
(4) working capital; and
(5) any other expenditure.