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How to raise funds for business?

After going through the incorporation formalities, the next stage will be raise funds. A private company without share capital can start business immediately.

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A public company cannot commence business unless minimum subscription as stated in the prospectus has been subscribed. The amount stated for allotment should be duly received in cash and allotment has been made properly. The amount of minimum subscription is fixed by taking into account the following requirements:

  • Amount required for purchase of property
  • Amount needed for payment of preliminary expenses.
  • Repayments of money borrowed by the company.
  • Requirements for working capital.
  • Amount required for nay other expenditure stating the nature and purpose thereof and estimated amount in each case.

As per the SEBI guidelines, if the company does not receive 90 percent of this issue amount from the public subscription within 120 days from the date of opening of the issue, the amount of subscription received is required to be refunded to the applicants.

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A company has to be taking the following steps for issuing share capital.

  • An agreement with underwriters who will undertake to sell the securities of the company.
  • Managers of the issue, share brokers and bankers are appointed before issuing securities.
  • An application is also filed with the Stock Exchange for listing of securities.
  • A copy of the Prospectus is filed with the Registrar of Companies.
  • The application forms are got printed and sent to various brokers.
  • The issue is properly advertised to bring it to the notice of the public.
  • The applications are received along with the application money through the bankers to the issue.
  • The shares are allotted after the close of the issue. If there is over subscription of the issue then allotment is made in consultation with the stock exchange. In case the applications re less than the minimum subscription fixed in the prospectus then no allotment is made and all money received on allotment is refunded within 10 days.
  • After completing the allotment process, a return of allotment is filed with registrar within 30 days of allotment.
  • A declaration that a prospectus or a statement is lieu of prospectus has been filed with the Registrar of Companies.
  • A declaration that shares payable in cash equivalent to minimum subscription has been allotted.
  • A declaration that directors have taken up their qualification shares and have paid application and allotment money in the same proportion as others.
  • A statement that no money is liable to become refundable to the applicants by reason of failure to apply for or to obtain permission for shares or debentures to be dealt in on any recognized stock exchange.
  • The sectary of the company or a director files a statutory declaration that the requirements relating to the commencement of business have been duly compiled with.

The Registrar will satisfy himself that all the documents are in order and all the legal formalities have been completed. He will issue a certificate of Commencement of business entitling the company to start its business from the date mentioned in the certificate. The process of company formation comes to an end with the issue of this certificate.

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