Formation of a Company

Formation of a Company

Formation of a company is a complex activity involving completion of a lot of legal formalities and procedures. To fully understand the process one can divide the formalities into four distinct stages, which are:

(i) Promotion;

(ii) Incorporation;

(iii) Subscription of capital; and

(iv) Commencement of business.

It may, however, be noted that these stages are appropriate from the point of view of the formation of a public limited company. As far as the private limited companies are concerned only the first two stages mentioned above are appropriate. In other words, a private company can start its business immediately after obtaining the certificate of incorporation. As it is prohibited to raise funds from the public, it does not need to issue a prospectus and complete the formality of minimum subscription. A public company, on the other hand, goes through the capital subscription stage and then receives the certificate of commencement. Thus, it has to undergo all the four stages.