Formation of a Company

The formation of a company is divided into three distinct stages:

1. Promotion
2. Incorporation
3. Subscription of capital

So these are the stages in the formation of a company.

For incorporation, the application must be accompanied by these documents:

- Memorandum of Association duly stamped, signed and witnessed
- Articles of Association duly stamped and witnessed
- Written consent of the proposed directors to act as directors and to purchase qualification shares
- Agreement, if any, with the proposed Managing Director/Manager/whole-time director
- A copy of the Registrar’s letter approving the name of the company
- A statutory declaration that all legal requirements for registration have been complied with
- Notice of the exact address of the registered office may also be submitted
- Documentary evidence of payment of registration fees

A prospectus is any document described or issued as a prospectus, including a notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of securities of a company. In simple words, it is an invitation to the public to apply for the company’s shares, debentures, or deposits.

It is not necessary for every company to file a prospectus. A public company inviting funds from the public must file a prospectus. But a private company cannot raise funds from the public, so it does not need to issue a prospectus. Also, if a public company is not inviting funds from the public, it may file a statement in lieu of prospectus instead.

A Return of Allotment is a statement filed with the Registrar of Companies after shares have been allotted. It is signed by a director or secretary and must be filed within 30 days of allotment.

It contains details such as the shares allotted and the persons to whom they were allotted.

A company interacts with SEBI at the capital subscription stage, because a public company raising funds from the public must obtain SEBI approval before issuing securities.

Promotion is the first stage in the formation of a company. It means conceiving a business idea and taking steps to give it practical shape by forming a company. The person or persons who do this are called promoters.

### Legal position of promoters
- Promoters are not the agents of the company, because the company is not yet incorporated.
- They are also not trustees of the company.
- They are in a fiduciary position and must not misuse their position.
- They can make a profit only if it is fully disclosed; they must not make secret profits.
- If secret profit is not disclosed, the company may rescind the contract and recover the purchase price, and also claim damages.
- Promoters are personally liable for contracts made before incorporation if the company does not later ratify them.
- They are not legally entitled to claim the expenses of promotion, though the company may reimburse them or pay remuneration if it so decides.