# Formation of a Company, Class 11 Business Studies | SwaVid Formation of a Company, NCERT Class 11 Business Studies: notes with key ideas, definitions, common mistakes and 3 quick checks with worked answers. Canonical: https://www.swavid.com/cbse/class-11/business-studies/chapter/formation-of-a-company Source: https://www.swavid.com/cbse/class-11/business-studies/chapter/formation-of-a-company # Formation of a Company ## Key definitions ## Key ideas ## Common mistakes ## Quick checks ## Keep going ## Questions parents ask ## Class 11 Business Studies on SwaVid ### Promotion stage ### Incorporation of company ### Capital subscription stage ### Memorandum of Association ### Articles of Association ### Prospectus and statements ### Next chapter ### Related chapter ### All chapters SwaVid › CBSE › Class 11 › Business Studies › Formation of a Company Notes written by SwaVid from the NCERT textbook. Class 11 Business Studies, Chapter 7. Key ideas, definitions and common mistakes. CBSE does not print marks for a single chapter. Short answer. This chapter explains the legal and procedural steps required to establish a joint stock company in India. A student learns about promotion, incorporation, subscription of capital, and the essential legal documents such as the Memorandum of Association and Articles of Association. Source: NCERT Business Studies (Reprint 2026-27) , Chapter 7, Formation of a Company Promotion begins with discovering a business idea and investigating its technical, financial, and economic feasibility. Promoters assemble resources, prepare initial documents, and undertake preliminary contracts before the company is registered. Incorporation involves filing an application with the Registrar of Companies along with statutory documents and registration fees. On scrutiny of these documents, the Registrar issues the Certificate of Incorporation, which gives the company legal personality. A public company raising funds from the public must issue a prospectus, appoint bankers and brokers, and ensure minimum subscription is received within the specified period. If minimum subscription is not met, the application money must be refunded to applicants. The Memorandum of Association is the principal document that defines the company's objectives, powers, and boundaries of operation. It includes the name clause, registered office clause, objects clause, liability clause, capital clause, and association clause. The Articles of Association contain rules and internal regulations for managing the daily affairs of the company. It governs the rights, duties, and powers of the management and members, and remains subordinate to the Memorandum of Association. A prospectus is an invitation issued by a public company to the general public to subscribe to its shares or debentures. It contains detailed information about the company to help potential investors make informed decisions. Try each question first. Then tap it to see the answer. Total issue value = 50,00,000 shares × ₹10 = ₹5,00,00,000 Minimum subscription required = 90% of ₹5,00,00,000 Minimum subscription = 0.90 × 5,00,00,000 = ₹4,50,00,000 ₹4,50,00,000 Minimum subscription requirement = 90% of 1,00,000 = 90,000 shares Shares applied for = 82,000 shares Since 82,000 is less than 90,000, minimum subscription has not been met No, the company cannot allot shares and must refund the application money. Check the scope of the objects clause in the Memorandum of Association. Any contract beyond the stated objects is ultra vires the company. Such contracts are legally void ab initio and cannot be validated even by unanimous consent of all members. Void ab initio Sources of Business Finance . Forms of Business Organisation . The 11 chapters of Class 11 Business Studies . CBSE does not give marks to one chapter. It prints marks for units or parts, and the chapter list page shows them all. No. They are written by SwaVid from the NCERT textbook. The CBSE curriculum is the reference for what is assessed. Sources of Business Finance. SwaVid is an AI tutor for Indian students in Classes 6 to 12. It finds the earlier ideas a child missed, then teaches today’s chapter. Start free to see how it works. - Ch 7 NCERT book - 80 marks, theory paper - 3 quick checks - Treating the promoter as an agent or trustee of the proposed company . Remember that a company does not exist before incorporation. Promoters stand in a fiduciary capacity toward the company, but they are neither agents nor trustees. - Confusing the scopes of Memorandum of Association and Articles of Association . The Memorandum defines the company's external boundary and relationship with outsiders. The Articles govern internal administration and always remain subordinate to the Memorandum. - Assuming private companies must complete the capital subscription stage . A private company can commence business immediately upon receiving the Certificate of Incorporation because it does not invite public subscription. ## Key Links - [CBSE](https://www.swavid.com/cbse) - [Class 11](https://www.swavid.com/cbse/class-11) - [Business Studies](https://www.swavid.com/cbse/class-11/business-studies/chapters) - [Start free →](https://www.swavid.com/signup) - [All 11 chapters](https://www.swavid.com/cbse/class-11/business-studies/chapters) - [NCERT Business Studies (Reprint 2026-27)](https://ncert.nic.in/textbook.php) - [Open notes](https://www.swavid.com/cbse/class-11/business-studies/chapter/sources-of-business-finance) - [Open notes](https://www.swavid.com/cbse/class-11/business-studies/chapter/forms-of-business-organisation) - [Class 11 Business Studies](https://www.swavid.com/cbse/class-11/business-studies/chapters) - [Start free →](https://www.swavid.com/signup)