Mrs.Geetha Dasaraty is a commerce graduate with a Masters in Business Administration specialising in finance. Her stint with a Coimbatore based company and later with a consulting firm in Chennai has provided her with a decade of experience in project finance and appraisals, accounting and tax laws. She is a freelance writer and money matters are her forte. She is currently pursuing her final course in Company Secretaryship and is doing a course on Vaishnavism. She has a passion for literature and Carnatic music. She is also a violinist.

In this chapter we will get to know about how a company is formed and about share capital.

Formation

Generally a company is formed to start a new business or to take over an existing business. We will see the various stages in the formation of a company.

* Promotion.
The promoters who conceive the idea of the business, join together to form the company. This is called the promotion of the company.

* Incorporation or registration: The following are the various stages of incorporation.
a. The promoter has to check from the Registrar of companies whether the proposed name is available and get their approval.

b. The Memorandum of association has to be prepared. The Memorandum Of Association which is the most important document sets the limits within which a Company can work. The Memorandum of Association has to include all the clauses as stated by the Law.

* Capital Subscription: A Public company can start business only on obtaining the Certificate of Commencement of Business. A private company can start business on incorporation. Public companies have to go in for public issues as per the SEBI guidelines for investor protection. These guidelines have to be followed.

* Certificate of commencement of business: A public company can commence business only on obtaining the certificate of commencement of business. The Registrar will issue the certificate only if all the stipulations are adhered to.

Share Capital
Every company requires share capital to run the business. Companies raise this capital by issue of shares. This capital is called share capital. Where the company is limited by shares, the Memorandum of Association states the amount of share capital.

The different kinds of share capital are:
Authorised capital: Authorised capital is also known as Registered capital or Nominal Capital. This is the maximum amount stated in the Memorandum of Association. . A company cannot issue capital in excess of this amount.

Issued Capital: Issued capital is the amount of capital that the company issues for subscription. This cannot exceed the company's authorised capital.

Subscribed Capital: The issued capital that is subscribed for is the subscribed capital.

Called up capital: Called up capital is the nominal value of shares, which the directors ask the subscribers to pay.

Paid up capital: The part of the called up capital, which the members of the company pay are, called the paid up capital.

Uncalled capital: The part of the issued capital, which has not been called, is the uncalled capital. The company can ask for this amount to be paid as and when it needs it under the provisions of the Article.

Reserve Capital: By a special resolution, a company may agree that a certain portion of the share capital that has not already been called up, can be called up only in the event of winding up. This is the reserve capital.

Application of shares:
After the prospectus has been issued shareholders who intend purchasing the shares will send their applications for shares along with the application money. Where the applications received amount to less than the minimum subscription, the application money has to be returned and no application should be accepted.

Allotment of shares
When the share applications are accepted, it means that the shares are allotted. This allotted share is the share capital.

Forfeiture of shares
Where any shareholder fails to pay the amount of a call, the company has the power to forfeit the shares, if provided for by the Articles. The procedure for forfeiture of shares has to be followed. On forfeiture the shares will be cancelled. The directors can reissue the forfeited shares.

Questions on Chapter 9
1. What are the various types of companies?
2. What are the characteristics of a company?