Key Points

A company is formed through three main stages: Promotion, Incorporation, and Capital Subscription. A private company only needs to complete the first two stages.

Promotion is the first stage in company formation. It involves discovering a business idea and taking the necessary steps to form a company to exploit the opportunity.

Promoters are the individuals or groups who conceive a business idea, conduct feasibility studies, and take all necessary steps to bring a company into existence.

Before forming a company, promoters conduct detailed feasibility studies, including Technical, Financial, and Economic feasibility, to ensure the business idea is viable and profitable.

The MoA is the principal document of a company, defining its objectives, powers, and relationship with the outside world. No company can undertake activities beyond what is stated in its MoA.

The MoA includes essential clauses such as the Name Clause, Registered Office Clause, Objects Clause, Liability Clause, and Capital Clause.

The AoA contains the rules and regulations for the internal management of the company. It is a subsidiary document to the MoA.

Incorporation is the second stage where a company is legally registered with the Registrar of Companies. Upon successful registration, the Registrar issues a Certificate of Incorporation, which is the company's birth certificate.

The Certificate of Incorporation is conclusive evidence of a company's legal existence from the date mentioned on it. After it is issued, the company's formation cannot be questioned.

This is the third stage, applicable only to public companies, where they raise funds from the public by issuing a prospectus and inviting subscriptions for their shares.

A prospectus is any document inviting deposits or offers from the public to subscribe to or purchase the securities (shares, debentures) of a company.

A public company cannot allot shares unless it has received a minimum amount of subscription from the public. As per SEBI guidelines, this is 90 percent of the issue size.

The Securities and Exchange Board of India (SEBI) is the regulatory authority that must approve a public company's proposal to raise funds from the public to protect investors' interests.

Preliminary contracts are made by promoters on behalf of a company before its incorporation. The company is not legally bound by these contracts, and the promoters remain personally liable.

The MoA defines the company's relationship with outsiders and is the main document, while the AoA governs internal management and is a subsidiary document.