Formation of a Company

Promotion is the first stage in company formation. It begins when an individual or group (the Promoter) conceives a business idea, analyzes its feasibility, and takes all necessary legal steps to bring the company into existence:

• Functions of a Promoter: (1) Identification of business opportunity, (2) Feasibility studies (Technical, Financial, Economic feasibility), (3) Name approval with Registrar of Companies (ROC), (4) Selecting signatories to the MOA, (5) Appointing professional bankers, brokers, and solicitors, (6) Preparing preliminary charter documents (MOA and AOA).
• Legal Position of Promoters: A promoter is neither an agent nor a trustee of the company (because an unborn company does not exist legally!). Instead, a promoter stands in a Fiduciary Relationship (a relationship of utmost trust and good faith) with the future company. A promoter can NEVER make secret profits from property sold to the company without full disclosure.
• Preliminary Contracts: Contracts entered into by promoters on behalf of the company prior to incorporation. The company cannot be bound by pre-incorporation contracts unless it formally ratifies them after incorporation under the Specific Relief Act.

A. Memorandum of Association (MOA - The Company's Constitution)

The MOA defines the fundamental scope, powers, and boundaries beyond which company actions cannot legally proceed. Any action outside the MOA is Ultra Vires (beyond powers) and completely null and void! It contains 6 Compulsory Clauses:

1. Name Clause: The legal name of the company. Must end with "Limited" (Public) or "Private Limited" (Private). Cannot be identical or too similar to existing registered trademarks.
2. Registered Office (Domicile) Clause: States the specific Indian State in which the registered office of the company will be situated (determines court jurisdiction).
3. Objects Clause (The Most Important Clause): Defines the main business objectives and operational purposes for which the company is formed. Any act outside this clause is Ultra Vires!
4. Liability Clause: Confirms that shareholder liability is limited to the unpaid face value of shares owned.
5. Capital Clause: States the maximum Authorized (Nominal) Share Capital the company can raise, divided into shares of fixed face value.
6. Association / Subscription Clause: Signed by initial founding members confirming their intention to form the company and take designated qualification shares (Min 2 for Private, Min 7 for Public).

B. Articles of Association (AOA) vs. MOA Comparison

Stage 2: Incorporation (Registration)

Promoters submit the signed MOA, AOA, statutory declaration of compliance, and registered address to the Registrar of Companies (ROC). Upon verification, the ROC issues the Certificate of Incorporation along with a 21-digit alphanumeric Corporate Identity Number (CIN):

• Conclusive Evidence: The Certificate of Incorporation is conclusive legal proof that all statutory requirements of incorporation have been complied with and that the company is officially born as an independent legal person, even if earlier clerical irregularities existed!
• Private Companies: Can commence business operations immediately upon receiving the Certificate of Incorporation.

Stage 3: Capital Subscription (For Public Companies)

Public companies raising capital from the public must complete four strict requirements:

1. SEBI Approval: Securities and Exchange Board of India vetting to ensure full investor protection disclosure.
2. Filing Prospectus: Public invitation document inviting investors to purchase shares.
3. Appointment of Bankers, Brokers, Underwriters.
4. Minimum Subscription (Section 39): The minimum amount of capital that directors deem necessary to initiate operations. Under SEBI regulations, a company must receive at least 90% of the issued share capital within 30 days of opening the issue. If the 90% threshold is not reached, the company MUST refund all application money within 15 days!