Forms of Business Organisations and Company Formation

Vocabulary flashcards defining company types, formation stages, promoter legal definitions, feasibility studies, and promotion steps based on the lecture notes.

Private Company

A form of business organisation with a minimum of $2$ members and a maximum of $200$ members, in which shares cannot be publicly traded in stock markets.

One Person Company

A company that has only $1$ member at any time during its existence, who must be an individual and an Indian resident holding virtually the entire share capital.

Public Company

A company registered with a minimum of $7$ members and no maximum limit, which is capable of attracting funds from the public through Public Offers.

Stages of Company Formation

The $4$ required stages for forming a public limited company: Promotion, Incorporation, Capital Subscription, and Commencement of Business.

Private Company Commencement Privilege

The exemption allowing a private limited company to bypass the Capital Subscription stage and commence business immediately after obtaining the certificate of incorporation.

Promotion

The first stage in the formation of a company, which involves identifying a business opportunity, analyzing its prospects, and taking steps to implement it.

Promoter

According to Section $2(69)$ of the Companies Act, $2013$, a person named in a prospectus or annual return under Section $92$, a person controlling company affairs directly or indirectly, or a person whose advice the Board of Directors is accustomed to act upon.

Technical Feasibility

A study assessing whether a business idea can be implemented using available technology, raw materials, and other necessary inputs.

Financial Feasibility

An evaluation determining whether sufficient funds can be arranged to carry out a proposed business project.

Economic Feasibility

An assessment verifying whether a project is profitable enough to justify the required investment.

Name Approval

A promotion step where promoters submit $3$ proposed names in order of preference to the Registrar of Companies to ensure the name is not identical to an existing company or misleading.

Signatories to the Memorandum of Association

The individuals (at least $7$ for a public company and $2$ for a private company) who sign the Memorandum of Association and typically act as the first directors.

Qualification Shares

A specific number of shares that directors are required to purchase under the Articles of Association to ensure they have a stake in the proposed company.

Appointment of Professionals

A step in the promotion stage where promoters hire experts such as mercantile bankers and auditors to assist in preparing and submitting required legal documents.

Preparation of Necessary Documents

The promotion step involving the preparation of legal documents, including the Memorandum of Association, Articles of Association, and Consent of Directors, for submission to the Registrar.