Unit 2

Forming A Company In India

The most commonly used corporate form is the limited company,

unlimited companies being relatively uncommon. A company is
formed by registering the Memorandum and Articles of
Association with the State Registrar of Companies of the state in
which the main office is to be located.

Stages Of Formation Of A Company

Planning to start a new company. Know the different stages of

formation of a company. Starting and registering a new company in
India is a process of its own. It is indeed a complex procedure and has
many legal formalities to it. Company formation can be roughly divided
into four parts:

1. Promotion of the company

2. Registration of the company
3. Certificate of incorporation
4. Commencement of the business

In this article, we will go through in detail all these procedures and you
would get to know the exact procedures to follow while forming a new
company

Promotion Of The Company

This is the first step that is involved in the stages of formation of a
company. We can say that promotion is the entire procedure by which
a company is brought into existence. The plan to start a company is
brought into reality by this step. business ideas are brought into the
frame in this step. The promoter has a very important role at this
stage.

Now you might be wondering who is a promoter of the company. Well,

the answer to that is, that a promoter is a person who is starting with
the stages of formation of a company and is concerned with the
promotion of the business. he would be the person who would be
pitching in the business idea, finding out ways to fund his business .
that person would start the legal procedure for the incorporation of the
company. they would appoint the board of directors and bankers for
the company.

Now there are mainly 4 types of promoters

1. Professional promoters- They promote the company in the initial

stage and as soon as the company is incorporated and has a
good position in the market the company would be handed over
to its shareholders.
2. Occasional promoters- As the name suggests are not very active
in the promotion of the company. they might be promoters of a
few other companies. they are only involved in the important
affairs of the company.
 3. Financial promoters- Venture capitalists would invest money or
capital into a venture and hold an important stake in the venture.
They hold a strong power over the working of the company.
4. Managing agents as promoters of the company- These
promoters would float new companies in India. They would get
managing agency rights in return.

Registration of The Company

This is the second step involved in the stages of formation of a

company. By registration, the company comes into its existence. It is a
very important factor that the company has to be registered under the
Companies Act, 2013.

Many steps have to be followed while registering to accompany

according to the Companies Act, 2013. They are as follows:

1. Memorandum of Association- The Memorandum of

Association has to be signed by the owners of the company. In
the case of a public company, a minimum of 7 people has to sign
the Memorandum of Association . In the case of a private
company, only two people have to sign it at a minimum.
2. Articles of Association- It is also required to sign the Article of
Association. Those who have signed the Memorandum of
Association are required to sign the Articles of Association.
 3. List of Directors- In the next step the list of directors and their
details have to be prepared and it should be filed with the
registrar of the companies.
4. Written consent of the directors- The directors who have been
selected should write a written consent in which they agree to be
the director of the company. This has to be filed with the
Registrar of Companies.
5. Notice of address of the registered office- In this step
the address of the registered office has to be filed.
6. Statutory declaration – A statutory declaration has to be made by
any advocate of the supreme court or the high court or the
person who is the director, secretary, or any practicing chartered
accountant or manager of the company. This has to be filed with
the Registrar of Companies.
7. Payment of Fee: Along with document mentioned above,
required fees have to be paid for the registration of the
company.

The registrar of the Company would then check all the documents and
then would verify them. If they are satisfied with the documents, then
they would issue a certificate called the certificate of incorporation.

Certificate of Incorporation

The certificate of incorporation is issued when the Registrar of the

company feels satisfied with the document filed in the step mentioned
above. The certificate of incorporation is required to show that the
company is incorporated according to the Companies Act, 2013.

Certificate of Commencement Of business

A private company can start its functioning once it receives the

certificate of incorporation, but that is not the case with the public
companies. For a public company to start doing its business, it needs
a certificate of commencement of business. After a private company
has received the certificate of incorporation, it can issue a prospectus
by which the public can subscribe to its shares and raise the capital.

It is also required that the public buys the minimum number of shares
that are given in the prospectus. After the minimum number of shares
has been received, a letter has to be sent to the registrar with bank
details showing that the amount has been received. The registrar goes
through the documents and if he feels satisfied then the registrar
would issue the certificate of commencement of the business. This is
the proof that it is used to show the commencement of the business.

Process For The Subscription Of Shares

There are seven steps involved in the initial public allotment:

1. Hiring financial experts from investment banks

2. IPO registration
3. SEBI verification
4. Appling in the stock exchange
 5. Public advertisement
6. Pricing of IPO
7. Allotment of shares

For a private company to issue shares to the public they will have to
follow these steps strictly. This process takes a long time to complete.
Hiring financial experts from the financial bank is one of the crucial
steps involved in this process. They would decide about the capital to
be raised and other important financial details.

What is a MOA (Memorandum of

Association)?
The Memorandum of Association (MOA) is considered as the
constitution or Charter of the Company, as it contains all the basic
legal information about it, including its name, address, purpose of
establishment, capital, and nature of liability of its shareholders. The
document is drafted by all the directors of the company and is
signed by all its shareholders. It is submitted to the ROC for
registration during the incorporation of the company.

The MOA of an existing company is a publicly accessible document

and all the details it contains are available for public verification and
inspection. So, it can also be said that a company cannot be formed
without a Memorandum of Association of MOA. The MOA defines the
objectives, powers and scope of the company beyond which the
company is not allowed to operate, i.e. it limits the scope of the
company’s activities. Every member and officer of the company,
such as its shareholders, creditors, investors, etc., should be familiar
 with the MOA to understand the overall scope and objectives of the
company.

What is an AOA (Association and Article of

Association)?
AOA is a legal document which defines the rules and regulations of
the company formulated for its internal administration and day to
day management. In this context, the Articles of Association
specifies the rights, responsibilities, powers and duties of the
members and directors of the company, and also provides
information on how a company should maintain its account and
audit records.

All companies should draft their Articles in a manner specific or

suitable to their own needs and requirements. The document is
drafted by the directors of the company and signed by all its
shareholders. Like the MOA, the AOA is also required to be
submitted to the ROC during the incorporation of the company. After
incorporation, even the MOA becomes publicly accessible and
available for public viewing and inspection.

What is the Difference Between MOA and

AOA?
The major points of difference between MOA and AOA are as follows:

 The first difference between MOA and AOA is that MOA describes the
powers and objectives of the company while AOA defines its rules.
 In the event of any inconsistency between the Memorandum and the
Articles of Incorporation as to any provision, the Memorandum of
Association shall prevail over the Articles of Association.
 The memorandum of association contains information about the
company’s powers and objectives. Conversely, articles of
association provide information about the company’s rules and
regulations.
 To amend the MOA, a special resolution must be passed at the
Annual General Meeting with the prior approval of the central
government, while amendments to the AOA can only be made by a
Special Resolution (SR) at the Annual General Meeting (AGM).
 At the time of incorporation, the MOA is required to be registered
with the Registrar of Companies. In the case of AOA, the company is
not required to meet such requirements, although there is a
provision for voluntary registration.

 What are the Main Clauses of MOA?

 The MOA is structured in such a manner that its information is
divided into 6 different clauses, in the chronological order
mentioned below.
 Name Clause
 The name of the company is mentioned in this clause. In case
of a public company, the word ‘limited’ is mentioned, and in
case of Private Limited Company, the word ‘Private Limited’ is
mentioned at the end of the name. To know the guidelines for
naming a company, click here.
 Situation Clause
 This clause mentions the state in which the registered office of
the company is situated. It also defines the geographical
constraints of the company.
 Object Clause
 This clause defines the main and auxiliary objects of the
company.
 Liability Clause
 This clause mentions the liability of the shareholders of the
company, which can either be limited or unlimited. Further
Limited Companies can be categorized into Companies Limited
by shares and those by Guarantee.
 Capital Clause
 This clause contains the authorized capital and subscribed
capital with which the company is to be registered. Also, the
division of the subscribed capital into share capital and fixed
investment is to be provided, with details of the total number
of shares subscribed and the price of each share.
 Subscription Clause
 This clause consists of the names of the initial subscribers of
the company, their addresses, and their contact information.
 What are the Contents of an AOA?
 Given below is the list of contents mentioned AOA of the
company:
 Information consisting of conducting of meetings and
holdings
 In this the information related to sending of notice, conducting
meetings, maintenance of minutes of meetings is described.
 Information Associated with Shares of the Company
 This includes information associated with conversion, transfer
and forfeiture of shares.
 Information related to Rights, Duties, and Removal of
Directors
 In this the information related to powers, duties and
appointment, removal of directors is mentioned.
 Information related to Winding up of Company
 All the rules and procedures governing the winding up of a
company are set out in the articles of association. The assets
of the company are distributed among the members and
trustees. The statutes determine the procedure and extent of
distribution of these assets during the winding up of the
company.