FORMATION OF A COMPANY Class 11 ONE SHOT Business studies chapter 7 | GAURAV JAIN

Summary

This educational video explains the process of forming a company, highlighting the four main stages: Promotion, Incorporation, Capital Subscription, and Commencement of Business. The promoter stage focuses on idea development and feasibility studies, including technical, financial, and economic assessments. Incorporation involves registering the company name and preparing key legal documents. The Capital Subscription stage involves raising funds, while SEBI approval ensures regulatory compliance. The final stage, Commencement of Business, marks the start of operations once all legal and financial steps are complete. The video provides a clear and concise overview of these essential business processes.

Takeaways

• 😀 A company is a separate legal entity with its capital divided into shares, and its existence continues regardless of changes in ownership.
• 😀 The formation of a company follows four main stages: Promotion, Incorporation, Capital Subscription, and Commencement of Business.
• 😀 Promotion is the first stage, where the initial idea for the company is developed and evaluated for feasibility through technical, financial, and economic studies.
• 😀 Once the idea passes feasibility tests, promoters seek approval for the company name from the Registrar of Companies to ensure it is unique.
• 😀 The Memorandum of Association (MOA) is a key document that outlines the company's objectives, powers, liabilities, and capital.
• 😀 Incorporation is the legal registration process, which includes submitting the necessary documents and paying registration fees to the Registrar of Companies.
• 😀 After incorporation, a Certificate of Incorporation is granted, signaling the official creation of the company.
• 😀 In the Capital Subscription stage, the company raises funds from private or public sources by issuing a prospectus to potential investors.
• 😀 SEBI approval is required for public companies before they can raise funds from the stock market, ensuring legitimacy and protecting investors.
• 😀 Minimum Subscription rules require that a public company raises at least 90% of the required funds within 120 days, or the application will be canceled.
• 😀 Once sufficient capital is raised, the company can commence business operations and begin its day-to-day activities.

Q & A

What is the meaning of 'promotion' in the context of company formation?

In company formation, 'promotion' refers to the initial stage where an individual or group gets an idea to form a company. It involves brainstorming, evaluating the feasibility of the idea, and planning the execution.

What is a feasibility study and why is it important during the promotion stage?

A feasibility study is an analysis conducted to determine whether the proposed company idea is practically possible. It includes three main types of studies: technical (is the idea technologically feasible?), financial (can the required capital be raised?), and economic (will the company be profitable?).

What is the role of a company promoter?

A company promoter is the individual or group who initiates the company formation process. They develop the idea, conduct feasibility studies, and lead the approval process for the company's name and documentation.

What is the importance of getting approval for the company name?

The company name must be unique and distinct from other registered companies. It must be approved by the Registrar of Companies to ensure that no two companies have the same name.

What documents are involved in the incorporation process?

The primary documents in the incorporation process are the Memorandum of Association (MOA) and the Articles of Association (AOA). The MOA outlines the company's objectives, powers, liabilities, and capital structure, while the AOA outlines the internal rules and regulations for the company’s operations.

What is the Memorandum of Association (MOA) and what does it contain?

The MOA is a crucial legal document that defines the company's objectives, scope of activities, capital structure, and the liabilities of its members. It also specifies the company's registered office and the minimum number of members required for formation.

What is the process of submitting documents for company incorporation?

After preparing the required documents (such as the MOA and AOA), the promoter submits them to the Registrar of Companies along with the applicable fees. Upon approval, the company is formally incorporated and receives a Certificate of Incorporation.

How does a company raise capital during the formation stage?

To raise capital, a company prepares a prospectus, which is a document outlining the company’s goals, objectives, and capital needs. This document is submitted to the Registrar and, for public companies, approval from SEBI is required before approaching the public for funds.

What is the role of SEBI in the company formation process?

SEBI (Securities and Exchange Board of India) regulates the process of companies seeking to list their shares in the stock market. It ensures that the company is legitimate and its operations do not deceive investors or the public.

What happens after the company raises the required capital?

Once the required capital is raised, the company issues shares to investors. If there is excess demand for shares, those who applied but did not receive shares will have their money refunded.