Page 1 - Lesson Note 8

SAI INTERNATIONAL SCHOOL

CLASSS XI

SUBJECT: BUSINESS STUDIES,

Forms of business Organization

CH 2 Lesson Notes 8 Promotion, Incorporation, Capital Subscription, Commencement of
Business

FORMATION OF A COMPANY

Formation of a company means bringing a company into existence and starting its business. The steps
involved in the formation of a company are:

(i) Promotion

(ii) Incorporation

(iii)Capital subscription

(iv) Commencement of business.

A private company has to undergo only first two steps but a public company has to undergo all the four
stages.

1. Promotion:
Promotion means conceiving a business opportunity and taking an initiative to form a
company.

According to Section 69, a promoter means a person
(a) Who has been named as such in a prospectus or is identified by the company in the annual
return referred to in section 92; or
(b) Who has control over the affairs of the company, directly or indirectly whether as a
shareholder, director or otherwise; or
(c) In accordance with whose advice, directions or instructions the Board of Directors of the
company is accustomed to act.
However, it is provided that nothing in this sub clause shall apply to a person who is acting
merely in a professional capacity.