Thursday, 2 October 2014

Companies Act 1956: Formation of a Company:- Promotion

Promote Lmeasy Promote Education

According to companies act 1956 companies are incorporated by following four steps.
                Certificate of Incorporation
                Commencement of business
Promotion means taking the basic steps for formation of company
Promotion is done by promoters
Meaning of Promoters:- promoters are the persons who take the basic steps for the formation of the companies. They are representatives of company before its formation. They are the persons who decide to form a company and make a contract for the company so that the contracts can be useful for the company.
Position of a Promoter:- Every promoter is the representative of the company before its formation. Hence when the company will be formed then the company will take the benefits of work done by promoters. Promoters are representatives of a company which is not in existence.
Preliminary Contracts:- these are the contracts made by the promoters before the incorporation of company.
Binding Effect of Preliminary Contracts:- A preliminary contract is binding against the promoters however the preliminary contracts are made for the benefits of the company. Every company must fulfil the obligations imposed upon the company by the preliminary contracts.
                In 1963 specific relief act was passed and according to this law when preliminary contracts were made and the company takes their benefit then the company is also bound by the preliminary contracts. Hence from 1963 preliminary contracts are enforceable against the company. Before 1963 the preliminary contracts were not enforceable against the company and were enforceable against the promoters only. Because of this it was very difficult for the promoters to work for the betterment of the company.
Promotion is done by deciding following things in relation to the company.
Name of Company
Nature of company
Memorandum and Articles of association are drafted

Choosing the first directors and auditors of company

Promote Lmeasy Promote Education

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