Following are the events which generally happen in the life of a public limited company a) Public issue of shares (IPO) b) Firm Incorporation c) Preliminary expenditures d) Issue of equity shares to promoters of the company Choose the correct sequence (chronological order) of the events from the options given below:
c) → b) → d) → a)
Understanding the Public Company Lifecycle Events
The question asks for the correct chronological order of several key events that happen during the formation and initial stages of a public limited company's life. Understanding these stages is crucial for anyone studying business or finance.
Let's break down each event listed and determine its typical place in the sequence:
- a) Public issue of shares (IPO): This is when a company offers its shares to the general public for the first time to raise capital. This event occurs after the company has been incorporated and has completed its initial setup, including raising funds from promoters.
- b) Firm Incorporation: This is the legal process by which a company is registered with the Registrar of Companies. Upon successful registration, the company receives a Certificate of Incorporation, which officially brings it into legal existence as a separate entity.
- c) Preliminary expenditures: These are expenses incurred even before the company is formally incorporated. Examples include costs related to drafting the Memorandum of Association (MOA) and Articles of Association (AOA), registration fees, stamp duty, legal consultation fees, etc. These costs are necessary to complete the incorporation process.
- d) Issue of equity shares to promoters of the company: Promoters are the individuals who conceive the idea of the business and take steps to form the company. After incorporation, they subscribe to the initial shares of the company, providing the initial capital. This step usually happens before the company goes public.
Sequencing the Events Chronologically
Based on the nature of these events, the logical and chronological order is as follows:
- The process begins with incurring preliminary expenditures (c). These are the costs associated with getting the company ready for registration.
- Once preliminary expenses are handled and necessary documents are prepared and filed, the company can undergo Firm Incorporation (b). This step gives the company its legal identity.
- After the company is incorporated, the original founders or promoters subscribe to shares (d) to provide the initial capital. This step establishes the initial ownership structure.
- Finally, if the company needs to raise further capital from the general public, it undertakes a public issue of shares (IPO) (a). This is a significant step where the company's shares are offered to investors outside the promoter group.
Therefore, the correct chronological sequence is c → b → d → a.
Comparing Sequence with Options
Let's match our derived sequence (c → b → d → a) with the given options:
| Option | Sequence | Matches c → b → d → a? |
|---|---|---|
| 1 | a) → b) → c) → d) | No |
| 2 | b) → c) → d) → a) | No |
| 3 | c) → b) → a) → d) | No |
| 4 | c) → b) → d) → a) | Yes |
Option 4 correctly represents the chronological order of the events in the life of a public limited company, starting from preliminary expenses, followed by incorporation, then issue of shares to promoters, and finally a public issue of shares (IPO).
Revision Table: Public Company Formation Events
| Event | Description | Typical Stage |
|---|---|---|
| Preliminary Expenditures (c) | Costs incurred before incorporation (e.g., registration fees, legal fees) | Pre-Incorporation |
| Firm Incorporation (b) | Legal registration of the company, obtaining Certificate of Incorporation | Incorporation Stage |
| Issue of Equity Shares to Promoters (d) | Initial shares allotted to the founders in exchange for initial capital/efforts | Post-Incorporation, Pre-Public Offering |
| Public Issue of Shares (IPO) (a) | First time offering shares to the general public | Post-Incorporation, Public Offering Stage |
Additional Information: Stages of a Public Limited Company Formation
The formation of a public limited company involves several stages, each with specific requirements and activities. While the question focuses on key financial and legal events, the overall stages include:
- Promotion Stage: This is the initial stage where the idea for the business is conceived, feasibility studies are conducted, and promoters take steps to form the company. Preliminary expenses are incurred during this stage.
- Incorporation Stage: This stage involves fulfilling all legal formalities for registration with the Registrar of Companies. This includes filing necessary documents and obtaining the Certificate of Incorporation.
- Capital Subscription Stage: This stage is relevant primarily for public companies that intend to raise capital from the public. It involves preparing a prospectus, obtaining necessary approvals (like from SEBI in India), and inviting the public to subscribe for shares. The issue of shares to promoters happens before the public issue.
- Commencement of Business Stage: A public company cannot start business operations or raise funds from the public immediately after incorporation. It needs to obtain a Certificate of Commencement of Business. This requires fulfilling certain conditions, like ensuring directors have paid for their qualification shares and filing a declaration that the company is ready to commence business. The IPO typically happens after obtaining this certificate. (Note: The question events fit within or lead up to the Capital Subscription and Commencement stages).
The sequence c → b → d → a captures key events within the Promotion, Incorporation, and Capital Subscription stages, illustrating the flow from initial costs to legal existence, initial funding by promoters, and finally, public fundraising.
Important Questions from Public Company
Government PSE's are known by three names. Which of the following is NOT one of the names by which PSE's are identified?
- What is a public limited company ?
