Arrange the following stages of formation of companies in a proper sequence: (A) Promotion stage (B) Raising of share capital stage (C) Incorporation stage (D) Commencement stage (E) Selection of name Choose the correct answer from the options given below:
(A), (E), (C), (B), (D)
Understanding Company Formation Stages
Forming a company is a structured process that involves several key stages. These stages must generally be followed in a specific order for a business entity to be legally constituted and ready to operate. The question asks for the correct sequence of these stages.
Analyzing the Key Stages of Company Formation
Let's examine the stages provided:
- (A) Promotion stage
- (B) Raising of share capital stage
- (C) Incorporation stage
- (D) Commencement stage
- (E) Selection of name
To determine the proper sequence, we need to understand what each stage entails and its logical position in the journey of forming a company.
1. Promotion Stage (A)
This is the very first stage where the idea of starting a business is conceived. Individuals, known as promoters, undertake the necessary steps to bring the company into existence. This involves identifying a business opportunity, conducting feasibility studies (market, technical, financial, economic), arranging for finance, and preparing the initial documents.
2. Selection of Name (E)
Choosing a name for the proposed company is a crucial step that happens early in the promotion stage. The promoters must select a name that is not already taken or too similar to an existing company's name. They apply to the Registrar of Companies (RoC) for name approval. This stage must precede the formal registration.
3. Incorporation Stage (C)
After the name is approved and initial documents like the Memorandum of Association (MoA) and Articles of Association (AoA) are prepared, the company moves to the incorporation stage. This involves filing the required documents with the RoC. Upon scrutinizing the documents and being satisfied, the RoC issues a Certificate of Incorporation. This certificate is the birth certificate of the company, giving it a separate legal identity.
4. Raising of Share Capital Stage (B)
This stage is particularly significant for public limited companies that intend to raise funds from the public. After incorporation, the company may issue a prospectus inviting the public to subscribe to its shares. This involves receiving applications, allotting shares, and collecting money. This stage is necessary to arrange the funds required to start the business operations.
5. Commencement Stage (D)
This is the final stage where the company is legally allowed to start its business operations. A private company can generally commence business immediately after incorporation. However, a public company having a share capital needs to obtain a Certificate of Commencement of Business from the RoC before it can start trading. This certificate is issued after the company fulfills certain conditions, such as raising the minimum subscription.
Determining the Correct Sequence of Company Formation Stages
Based on the logical flow of establishing a company, the stages occur in the following order:
- The idea is born and promoters take initial steps (Promotion Stage - A).
- A suitable and available name is chosen and approved (Selection of Name - E).
- The company is legally registered with the authorities (Incorporation Stage - C).
- Necessary funds are arranged, especially by issuing shares to the public (Raising of Share Capital Stage - B).
- The company gets the permission or is ready to begin its business activities (Commencement Stage - D).
Therefore, the correct sequence of the given stages is (A), (E), (C), (B), (D).
| Order | Stage | Key Activity |
|---|---|---|
| 1st | (A) Promotion | Idea conception, feasibility studies, initial preparations. |
| 2nd | (E) Selection of name | Choosing and getting approval for the company's name. |
| 3rd | (C) Incorporation | Legal registration and obtaining Certificate of Incorporation. |
| 4th | (B) Raising of share capital | Collecting funds by issuing shares (mainly for public companies). |
| 5th | (D) Commencement | Starting business operations, obtaining Certificate of Commencement (for public companies). |
Revision Table: Company Formation Process
| Stage | Primary Focus |
|---|---|
| Promotion | Bringing the business idea into existence. |
| Selection of Name | Securing a legal identity name. |
| Incorporation | Achieving legal status as a registered company. |
| Raising of Share Capital | Gathering necessary financial resources. |
| Commencement | Beginning actual business operations. |
Additional Information on Company Formation
While these five stages provide a general overview, the specific requirements and procedures can vary based on the type of company (e.g., private vs. public) and the jurisdiction's company law. For instance, a private company does not need to raise share capital from the public and can often commence business right after incorporation, skipping or merging stages (B) and (D) in practice compared to a public company which must comply with stricter regulations regarding capital raising and obtaining a separate certificate for commencement.
The role of the Registrar of Companies is central to the incorporation and commencement stages, acting as the regulatory authority that ensures compliance with the Companies Act.
Important Questions from Business organizations
Besides banks, the other formal major source of cheap credit in rural areas, are :
Which one of the following is NOT a market-oriented definition of a business?
Arrange in the sequence, steps in the procedure for calling a statutory meeting of the company
A. Contents of the statutory report
B. A list of members must be produced at the commencement
C. Twenty-one days notice
D. Certification of the statutory report by not less than two directors, one of whom must be the managing director
E. A certified copy of the statutory report must be delivered to the Registrar
Choose the correct answer from the options given below
Given below are two statements, one is labelled as Assertion A and the other is labelled as Reason R
Assertion A: Two companies with the same general earning power and same general position in an industry, the one paying larger dividend will almost always sell at a higher price
Reason R: The discounted value of near dividends is higher than the present worth of distant dividends
In light of the above statements, choose the most appropriate answer from the options given below
Which of the following statements are false? Indicate the correct code.
(A) No company has to file any prescribed declaration before commencement of business.
(B) A company can ratify the contract entered into by the promoters with third parties on behalf of the company before its formation.
(C) The date mentioned in the certificate for commencement of business is taken as the date of birth of a public company.
(D) A private company has to file a "Settlement in lieu of prospectus" with the registrar.
Choose the correct answer from the options given below:
