Explain the process of formation of a company. Bring out the duties, liabilities of and rewards for a promoter in this regard.

 Formation of a Company: 

The process of forming a company involves several steps to legally establish a business entity. This process can be divided into three main stages:

1. Promotion Stage:

A person or group (known as promoters) comes up with a business idea and plans its execution.

They prepare a feasibility study to understand market demand, costs, and potential profits.

Promoters arrange for initial funding, choose the company’s name, and prepare documents like the Memorandum of Association (MOA) and Articles of Association (AOA).

2. Incorporation Stage:

Promoters file the necessary documents with the Registrar of Companies (RoC).

Key documents include:

MOA: Explains the company’s objectives, powers, and scope.

AOA: Lays out the company’s internal rules and regulations.

Other documents, like the director’s details and a declaration of compliance, are also submitted.

Once verified, the RoC issues a Certificate of Incorporation, officially creating the company.

3. Commencement of Business Stage:

For public companies, after incorporation, they issue a prospectus to invite the public to buy shares.

After meeting minimum subscription requirements, they receive a Certificate of Commencement of Business and can start operations.

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Duties, Liabilities, and Rewards of a Promoter

Duties:

Idea Development: Promoters are responsible for forming and refining the business idea.

Legal Compliance: They must prepare and submit accurate documents to avoid legal issues.

Fiduciary Duty: Promoters must act honestly and avoid personal gain at the expense of the company.

Transparency: Any profit they earn from transactions with the company must be disclosed.

Liabilities:

Accuracy of Information: Promoters are liable for any false statements or omissions in the company’s prospectus.

Breach of Duty: If promoters act dishonestly, they can be held responsible for losses caused to the company.

Third-party Contracts: If they enter contracts before the company is formed, promoters are personally liable unless the company adopts the contracts later.

Rewards:

Monetary Rewards: Promoters may be paid a commission, shares, or profits for their efforts.

Reimbursement: They are entitled to recover legitimate expenses incurred during the promotion process.

Recognition: Promoters may gain significant recognition and hold key positions in the company, such as directorships.

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Conclusion

Forming a company is a structured process that transforms a business idea into a legal entity. Promoters play a crucial role in this process, from planning to incorporation. While they face significant responsibilities and risks, the rewards for successfully establishing a company can be equally substantial.