Company formation refers to the legal process by which a company is incorporated and registered under the Companies Act, 2013. It marks the beginning of a company's legal existence, enabling it to carry out business operations in its own name.
Company Formation
Company formation is the process of bringing a company into legal existence. It involves several stages such as planning, registration, and compliance with regulatory formalities laid down in the Companies Act, 2013.
Key Stages in the Formation of a Company
The formation process typically involves the following four main stages:
a. Promotion Stage
Promotion is the first step in forming a company. A promoter is a person who conceives the idea of starting a business and takes steps to bring the company into existence.
Key Functions of Promoter:
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Identifying the business opportunity
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Assembling resources
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Preparing legal documents (e.g., MOA, AOA)
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Appointing professionals (lawyers, CAs)
Example: A promoter may plan to start a private limited company that manufactures eco-friendly packaging.
b. Incorporation Stage
This stage involves the legal registration of the company with the Registrar of Companies (ROC) under the Ministry of Corporate Affairs.
Steps Involved:
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Obtain Digital Signature Certificate (DSC) – For authenticating documents.
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Get Director Identification Number (DIN) – For proposed directors.
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Reserve Company Name – Through RUN or SPICe+ form on MCA portal.
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Draft MOA and AOA –
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Memorandum of Association (MOA): Contains the company’s objectives.
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Articles of Association (AOA): Contains internal rules and regulations.
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Filing with ROC – Submit required forms (SPICe+), fee, and documents.
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Issuance of Certificate of Incorporation – This marks the birth of the company as a legal entity.
Note: PAN and TAN are also automatically issued along with incorporation.
c. Capital Subscription Stage (For Public Companies)
This stage applies only to public companies that offer shares to the public. They must raise the minimum subscription before starting business.
Steps:
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Issue of prospectus
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Receipt of application money
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Allotment of shares
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Filing return of allotment with ROC
Note: Private companies are exempt from this stage as they raise capital privately.
d. Commencement of Business Stage
Under the Companies Act, 2013, all companies (except those exempt) must file Form INC-20A to declare commencement of business within 180 days from incorporation.
Requirements:
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Bank account in company’s name
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Proof of minimum paid-up capital
Only after filing INC-20A can the company start business operations legally.
Legal Documents Required
a. Memorandum of Association (MOA)
Defines the external constitution and scope of activities.
b. Articles of Association (AOA)
Governs the internal management of the company.
c. Other Documents
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Declaration by professionals (Form INC-8)
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Affidavit by subscribers (Form INC-9)
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Proof of registered office (Form INC-22)
Types of Companies That Can Be Formed
Under the Companies Act, 2013, companies can be formed as:
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Private Company
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Public Company
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One Person Company
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Section 8 Company (for non-profit purposes)
Conclusion
Company formation is a systematic legal process involving planning, registration, and compliance with statutory requirements. Whether forming a private or public company, understanding the stages of formation ensures that the entity is legally recognized and prepared to begin operations.