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Promotion of a Company: Meaning, Documents and Steps Involved

Last Updated : 10 Jan, 2024
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What is Promotion of a Company?

Promotion entails conceiving a business opportunity and taking the initiative to form a company so that the available business opportunity can be given practical form. The first phase of a company’s formation is Promotion. Aside from conceiving business opportunities, promoters analyse their prospects and bring together the men, materials, machinery, managerial abilities, and financial resources to get the organisation into operation.

So it all starts with someone coming up with a business idea. Any individual, group of individuals or even a company could have found an opportunity. They are referred to as the promoters of the company if such a person, a group of people, or a company goes ahead and forms the company.

Documents required to be submitted for Promotion of a Company

1.  Memorandum of Association: A company’s Memorandum of Association, or MOA, establishes its constitution and the scope of its powers. The MOA functions as the foundation around which the company is formed. A company’s MOA contains the object for which the company is created. It defines the extent of its operations and the boundaries that it will not cross. The Memorandum of Association is the most important document because it defines the company’s goals. No company can legally engage in activities that are not expressly stated in its Memorandum of Association. According to section 2(56) of The Companies Act, 2013, a “memorandum” is a company’s memorandum of association as originally framed or as amended from time to time in accordance with any previous company law or this Act. The Memorandum of a company should be formulated in accordance with the respective forms as mentioned in Tables A, B, C, and D&E under Schedule 1 of the Companies Act.

Respective Forms of MOA

Table A MOA of a company Limited by Shares
Table B MOA of a company Limited by Guarantee and Not having Share Capital
Table C MOA of a company Limited by Guarantee and having Share Capital
Table D MOA of an Unlimited Company and Not having Share Capital
Table E MOA of an Unlimited by Company and having Share Capital

The following are the various clauses contained in the Memorandum of Association:

  • Name Clause: This clause includes the name by which the company will be known, which has already been approved by the Registrar of Companies.
  • Registered Office Clause: This clause specifies the state in which the company’s registered office is to be located. The exact address of the registered office is not required at this time, but it must be notified to the Registrar within thirty days of the company’s incorporation.
  • Object Clause: This is most likely the most significant clause of the memorandum. It defines the purpose of the company’s formation. A company is not legally permitted to engage in any activity that goes beyond the context of this clause. This subclause lists the primary purposes for which the company was created. It should be noted that an act that is either necessary or incidental to the achievement of the company’s principal objectives is regarded as valid even if it is not specifically mentioned.
  • Liability clause: This clause limits the members’ liability to the debt specified on the shares they own. For example, if a shareholder purchases 1000 shares of ’10 each and has already paid’6 per share, his or her obligation is restricted to’4 per share. Thus, even in the worst-case scenario, he or she may be required to pay merely 4,000.
  • Capital clause: This clause specifies the maximum amount of capital that the company may raise through the issuance of shares. This clause specifies the proposed company’s authorised share capital as well as its division into the number of shares with a fixed face value. The signatories to the Memorandum of Association declare their intention to be associated with the company and pledge to subscribe to the shares listed against their names. The Memorandum of Association must be signed by at least seven people in the case of a public company and two people in the case of a private company. For example, the company’s authorised share capital could be ’25 lakhs,’ divided into 2.5 lakh shares of ’10 each. The said firm is not permitted to issue share capital in excess of the amount specified in this clause.

2. Consent of Proposed Directors: In addition to the Memorandum and Articles of Association, each person named as a director must provide written consent confirming that they agree to act in that capacity and agree to buy and pay for qualification shares as specified in the Articles of Association.

3. Agreement: Another document that must be submitted to the registrar in order for the company to be registered under the Act is the agreement that the company proposes to enter with any individual for appointment as its Managing Director or a full-time Director or Manager.

4. Articles of Association: Articles of Association are the rules that regulate a company’s internal management  Because these rules are supplementary to the Memorandum of Association, they should not contradict or surpass anything stated in the Memorandum of Association.

According to Section 2(5) of The Companies Act, 2013, ‘articles’ refers to a company’s articles of association as originally framed or as altered from time to time and applied in full compliance with any previous company law or this Act.

5. Statutory Declaration: A declaration stating that all legal requirements for registration have been managed to meet should be submitted to the Registrar along with the above-mentioned documents in order for the company to be registered under the law. This statement can be signed by an advocate, Chartered Accountant, Cost Accountant, or Company Secretary in practice who is involved in the formation of a company and as well as by a person named in the articles as a director, manager or secretary of the company.

6. Receipt of Fee Payment: In addition to the above-mentioned documents, the necessary fees for company registration must be paid. The amount of such fees will be determined by the company’s authorised share capital.

Steps Involved in Promotion of Company(Functions of a Promoter):

1. Identifying Business Opportunity: A promoter’s first and most important task is to identify a business opportunity. The opportunity could be to create a new product or service, to make a product available through a different channel, or to pursue any other opportunity with investment potential. This opportunity is then evaluated for technical and economic feasibility.

2. Feasibility Studies: Converting all identified business opportunities into actual projects may not be feasible or profitable. The promoters conduct extensive feasibility studies to investigate all aspects of the proposed business. Depending on the project’s nature, the following feasibility studies may be conducted with the assistance of specialists such as engineers, chartered accountants, and so on, to determine whether the perceived business opportunity can be profitably exploited. 

  • Technical feasibility: Sometimes a good idea is technically impossible to carry out. It could be because the required raw material or technology is difficult to obtain. 
  • Financial feasibility: Every business activity requires funds. The promoters must estimate the amount of money needed to fund the identified business opportunity. If the project’s required outlay is so large that it cannot be easily arranged within the available resources, the project must be abandoned. 
  • Economic feasibility: Sometimes a project is technically and financially viable, but the chances of it being profitable are very low. In such cases, the idea may also have to be abandoned. These studies are typically carried out with the assistance of professionals in the field.

3. Approval of Name: After deciding to incorporate a company, the promoters must choose a name for it and submit an application for approval to the registrar of companies in the state where the company’s registered office will be located. If the proposed name is not considered unfavourable, it may be approved. It is possible that another company with the same or very similar name already exists, or that the preferred name is misleading in implying that the company is in a specific business when this is not the truth. The proposed name is not accepted in such cases, but an alternate name may be approved. As a result, three names are submitted to the Registrar of Companies in the order of their priority.

Important points while selecting the Name:

  • The name should neither be identical with nor closely resemble the name of an existing company
  • The name should be misleading, i.e., name should not suggest that the company is in a particular business or it is an association of a particular type when it is not true.
  • The name  should not be objectionable under the provisions of the Emblem and Names(Prevention of Improper Use) Act, 1950
  • The word ‘Cooperative’ should not be included in the name.
  • The name should not convey any connection with a government department or local authority.
  • The name should end with the word ‘Limited’ in case of a public company and with the words ‘Private Limited’ in case of a private company. 

4. Fixing up Signatories to the Memorandum of Association: Promoters must decide on the members who will sign the proposed company’s Memorandum of Association. The people who sign the memorandum are usually the first directors of the company. It is necessary to obtain their written consent to act as Directors and to consider purchasing the qualification shares in the company.

5. Appointments of Professionals: Certain professionals such as merchant bankers, auditors, and so on are appointed by the promoters to assist them in completing the necessary paperwork that must be filed with the Registrar of Companies. In a document known as a return of allotment, shareholders’ names, addresses, and the number of shares allotted to each are provided to the Registrar.

6. Preparation of Necessary Documents: The promoter begins the process of preparing certain legal documents that must be submitted to the Registrar of Companies under the law in order for the company to be registered. These documents are the Memorandum of Association, Articles of Association, and Directors’ Consent.

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