CBSE Class XI Business Studies

1. Formation of a
Company

2. A company is as association of persons formed for
carrying out business activities and has a legal status
independent of its members.
It is setup by registration under The Companies Act, 2013 or
any previous company laws (The Companies Act, 1956)
The formation of a company is a time consuming, expensive
and complicated process. It involves preparation of several
documents and compliance with several legal requirements
before it can start functioning.
Registration of a company is compulsory under The Indian
Companies Act.

3. Steps in
Formation
Promotion
Incorporation
Subscription of
Capital
Commencement
of Business

4. Point to be
noted my Lord..
In case of Public Ltd Co, all
the 4 stages are needed.
But in case of Private Co, only
first 2 stages are needed.

5. Promotion of a Company
• It is first stage in the formation of a company.
• It refers to discovery of business opportunities and the subsequent
organization of funds, property and managerial abilities into a business
concern for the purpose of making profit therefrom.
• The person who performs all the tasks during the promotion stage is
known as ‘Promoter’.
• Promoter is a person who conceives the idea of starting a business,
examines the feasibility of idea, assemble various resources, prepare
necessary documents and perform other activities needed to commence
the business.
• Promoter can be a person or a group of persons or a company.

6. • The person who performs all the tasks
during the promotion stage is known as
‘Promoter’.
• Promoter is a person who conceives the
idea of starting a business, examines
the feasibility of idea, assemble various
resources, prepare necessary
documents and perform other activities
needed to commence the business.
• Promoter can be a person or a group of
persons or a company
Who is a Promoter?

7. Is Promoter
an Agent?NO!!!!
Promoter is not an agent as
the company is not yet
registered and he is
personally liable for all the
contracts (Preliminary
Contracts) entered by him
before incorporation.

8. Is Promoter
a trustee?
NO!!!!
Promoter is not a
trustee but he stands in
a relationship of utmost
faith and should not
misuse his position by
making secret profits in
the dealings.

9. What are Preliminary Contracts?
• These are entered into by promoters with third parties on
behalf of the company, before its incorporation.
• Promoters remain personally liable for such contracts.
• Such contracts are not legally binding on the company.

10. • Promoters are not legally entitled for expenses
incurred in the promotion of the company.
However, the company may reimburse such pre-
incorporation expenses.
• The company may remunerate the promoters by
making a lump sum payment or commission
• The company may allot shares or debentures to
the promoters.

11. Functions of a Promoter / Steps in
Promotion
Identification of Business Opportunities
Feasibility Studies
Name Approval
Fixing up signatories to MoA
Appointment of Professionals
Preparation of Necessary Documents

12. Documents to be submitted to
Registrar
Memorandum Of Association
Article of Association
Consent Of Proposed
Directors
Agreement
Statutory Declaration

13. Memorandum of Association
• It is the principal document of a company.
• It is also known as Charter of a Company
• MoA contains the powers and objectives of the company
• It defines the scope of its operations and its relation with
the investors and outside world.
• The company has to work within the limits laid down in
Memorandum.

15. Contents
of MoA
Name
Clause
Domicile
Clause
Objects
Clause
Capital
Clause
Associat
ion
Clause
Liability
Clause

16. Article of Association
• It contains rules and regulations for internal management
of a company.
• It is subsidiary to MoA, hence cannot contain any thing
which is against MoA.
• Table F is a model set of Articles given in the Companies
Act.
• A public ltd. Co may either adopt Table F or may have its
own AoA

18. Incorporation of a Company
• This is second stage in the formation of a company.
• This means registration of the company under the Companies Act
2013
• After the registrar approves the name, following steps will be
followed:
• Filling of Documents
• MoA
• AoA
• Written consent of proposed directors
• Agreement
• Notice of the exact address of registered office of company
• Payment of Fees
• Certificate of Incorporation, also known as birth certificate of
company

20. Effects of Certificate of Incorporation
• A company is legally born on the date printed on Certificate of
Incorporation
• Company gets the status of separate legal entity with perpetual
succession
• Company can enter into valid contracts
• Issue of certificate will make the incorporation valid even if a person
has forged a signature
• Registrar should be very careful before issuing this
• A Private company can immediately commence its business after
obtaining Certificate of Incorporation

22. Capital Subscription
• After incorporation, company has to raise the necessary capital by
issuing shares and debentures to the public.
• For raising capital, company has to issue a prospectus.
• Following steps will be required for raising funds:
• SEBI Approval
• Filing of Prospectus or Statement in Lieu of Prospectus
• Appointment of Bankers, Brokers and Underwriters
• Minimum Subscription
• Application to Stock Exchange
• Allotment of Shares

23. Commencement of Business
• After receiving minimum subscription through new issue of
shares, a public company makes an application to the Registrar
for issue of Certificate of Commencement of Business.
• Following documents need to be submitted along with
application:
• Declaration of minimum subscription
• Declaration that every director has paid in cash, the
application and allotment money on shares
• Declaration that no money is liable to be refunded to the
applicants
• Statutory declaration by Director of company

24. The Registrar will scrutinize all
the documents and if satisfied,
he issues a Certificate of
Commencement of Business.

27. Basic factors for starting a Business
Selection of
Line of
Business
Size of the Firm
Choice of Form
of Ownership
Location of
Business
Enterprise
Financing the
Proposition
Physical
Facilities
Plant Layout
Competent and
Committed
Workforce
Tax Planning
Launching the
enterprise

28. Practice Questions
1. At which stage in the
formation of a company does a
promoter interact with SEBI?

29. ANS: Capital Subscription
3RD STAGE
• Following steps will be required for raising funds:
• SEBI Approval
• Filing of Prospectus or Statement in Lieu of Prospectus
• Appointment of Bankers, Brokers and Underwriters
• Minimum Subscription
• Application to Stock Exchange
• Allotment of Shares

30. 2. Name the stages in the
formation of a company.

31. Steps in
Formation
Promotion
Incorporation
Subscription of
Capital
Commencement
of Business

32. 3. Distinguish between
‘Preliminary Contracts’ and
‘Provisional Contracts’

33. • Preliminary contracts are entered by promoters
before incorporation stage, while provisional
contracts are signed after incorporation.
• Preliminary contracts does not bind the company
legally, while provisional contracts are
enforceable after the company gets certificate to
commence business

34. 4. What is the minimum paid up
capital required by private and
public company?

35. Private = 1 lac
Public = 5 lac

36. 5. Who are the first directors of
a company?

37. People who sign MoA, also
known as signatories

38. 6. Which document defines the
objectives of a company?

39. 7. Is it necessary for a private
company to issue a prospectus
or statement in lieu of
prospectus?

40. 8. What is the role of
underwriters in the capital
subscription stage of public ltd
company?

41. 9. Which is the regulatory
authority in the securities
market to protect the interest of
investors?

42. 10. Is it compulsory for every
company to have its own AoA?

43. 11. Ramesh is hired to conduct
financial feasibility of a project.
Whether he will be termed as a
promoter?

44. 12. A promoter identifies a lot
of potential in the business of
import of LCD monitors from a
foreign country. However, it
needs huge finance, which
cannot be arranged. Whether it
is feasible to start the
business?

45. 13. Under which act, a
proposed name of company is
considered undesirable?

46. 14. When a company is legally
born?

47. Thank
You!!!
By – Priyanka Chhabra