Page 213 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes

Notes Section 70 makes it obligatory for every public company to take either of the
following two steps: (i) Issue a prospectus in case public is to be invited to subscribe to its
capital, or (ii) Submit a ‘statement in lieu of prospectus’ with the registrar at least 3 days
before the allotment, in case capital has been arranged privately.

Self Assessment

Fill in the blanks:
8. When a private company is formed, the necessary capital is obtained from friends and
relatives by ……………………………….
9. When a company has been registered and has received its………………………….., it is
ready for floatation.
10. Section 70 makes it obligatory for every public company to issue a …………………in case
public is to be invited to subscribe to its capital.

11. ………………means company can go ahead with raising capital sufficient to commence
business and to conduct it satisfactorily.

8.4 Commencement of Business

We have mentioned earlier that one of the privileges of a private company is that it has neither
to issue a prospectus nor to submit a statement in lieu of prospectus with the registrar. It can go
ahead with the allotment of shares without these formalities and, therefore, can commence
business immediately after the certificate of incorporation has been obtained. Section 149 exempts
a private company from obtaining a certificate to commence business.

However, in the case of every public company having a share capital, it is absolutely necessary
to obtain a certificate to commence business. This certificate can be obtained only after ‘floatation’
of the company.
The procedure for obtaining this certificate varies with the fact whether the company has issued
a prospectus or not. If the company has issued a prospectus, then the procedure stated in s.149 (1)
becomes applicable, and if it has not issued a prospectus, then the procedure as laid down in
s.149 (2) shall apply.

Where the Company has issued a prospectus. s.149 (1) provides that if a company having a share
capital has issued a prospectus, it shall not commence business or exercise any borrowing
powers unless:
(a) Shares up to the amount of the minimum subscription have been allotted by the company;
(b) Every director of the company has paid to the company, on each of the shares taken or
contracted to be taken by him and for which he is liable to pay in cash, the same proportion
as is payable on application and allotment on the shares, offered for public subscription;
(c) No money is, or may become, liable to be repaid to the applicants for shares or debentures
offered for public subscription, for failure to apply for, or to obtain permission for the
shares to be dealt in any recognised stock exchange;

(d) There has been filed with the registrar a duly verified declaration by one of the directors
or the secretary or, where the company has not appointed a secretary, a secretary in

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