Promotion and Incorporation of Company

June 09, 2025

Registrationwala

Preface: This post was originally published in 2017 and has been updated on June 09, 2025, to provide you with the most current and accurate information.

While forming a company, promotion and incorporation are two of the most important stages. On one hand, promoting a company refers to brainstorming and prepping a plan to start a business. On the other hand, incorporating refers to officially registering that business with the Registrar of Companies (ROC), and securing a Certificate of Incorporation (COI).

In this blog post, we shall explain the promotion and incorporation of a company as outlined in the Companies Act 2013.

What is Promotion of a Company?

The promotion of a company is predecessor to its incorporation. We can understand “promotion” as an initial stage wherein individuals, known as promoters, conceive the business idea and then take all the necessary steps to bring the company into existence.

Who is Company Promoter?

The definition of a promoter can be explained as “an individual who initiates the formation of a company. It is important to note that a person acting only in professional capacity, such as a solicitor, banker or an accountant, is not regarded as a promoter.”

Promoters handle every aspect of starting a business, including drafting the articles of association and memorandum of association, signing contracts with bankers and other necessary actions.

Promoters in company law are defined under Section 2(69) of the Companies Act 2013. According to this section, a promoter means a person -

(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or

(b) who has control over the affairs of the company, directly or in directly whether as a share holder, director or otherwise; or

(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

An individual acting merely in a professional capacity shall not be covered by this clause.

Function of Promoter

Promoter duties and functions are as follows:

A key promoters function is to identify a business idea and evaluate whether it is feasible or not.
Promoters owe a fiduciary duty to the company. Therefore, they must act in the company’s good faith and avoid any conflicts of interest.
A promoter may choose a name for the company that is legally acceptable and unique, and then ensure such a name is registered with the Registrar of Companies (ROC), Ministry of Corporate Affairs (MCA).
They may arrange drafting and printing of articles of association and memorandum of association.
The promoter negotiates the purchase of the business.
They determine the quantity and structure of the share capital as well as decide the registered office's location.
They set up the company's minimum subscription.
They also arrange the company's registration and certificate of incorporation.

Liabilities of Promoter

Promoters liabilities include the following:

A promoter may be held accountable for compensation as well as damages related to dishonesty in a lawsuit brought by an aggrieved shareholder.
A promoter is personally responsible for the contract on the company's behalf, even though they may merely function as an agent or trustee.
If a promoter makes false representations in the prospectus, fails to disclose any information in the prospectus or violates any of the conditions outlined in Section 56 of the Companies Act 2013, they may be required to compensate the shareholder.

Rights of Promoters

The rights of promoters of a company are as follows:

Promoters have the right to seek assistance from experts for preparing documents relevant to company formation.
They may claim reasonable compensation for the services rendered.
On the proposed corporation’s behalf, the promoters may enter into preliminary or pre-incorporation contracts.

What is Incorporation of a Company?

The incorporation of a company refers to the legal process of forming a company, and granting it a separate legal identity from its shareholders. According to Section 3(1) of the Companies Act, a company can be formed for any lawful purpose by:

Seven or more people, if it is to be a public company;
Two or more people, if it is to be a private company; or
One person, if it is to be a One Person Company (a type of private company).

In all cases, the individuals must subscribe their names (or name) to a memorandum and meet the registration requirements under the Act.

Incorporation Options: Share-Based, Guarantee-Based or Unlimited

The company formed can be:

A company limited by shares,
A company limited by guarantee, or
An unlimited company.

Process of Incorporation of Company

The process for a company’s incorporation follows the promotion stage. Here’s how the process takes place:

Registration Application: It shall be filed via MCA portal.
Documents and Details for Registration Filing: These include:

Memorandum of Association (MoA) signed by all subscribers
Articles of Association (AoA) signed by all subscribers.
Declaration by a professional (Advocate, Chartered Accountant, or authorized agent) stating that all registration requirements under the Companies Act have been duly followed.
Declaration by all subscribers confirming that they: (i) Have not been charged under any prevailing laws (ii) Have complied with all legal requirements related to company registration.
Temporary correspondence address to be used until the official registered office is set up.
Identity proof from all subscribers (e.g., PAN, Aadhaar, passport, etc.).
Identity proof from all directors, including details such as: (i) Full name (ii) Permanent address (iii) Nationality (iv) Other relevant personal information.

Grant of COI by Registrar: On the basis of documents and information filed, the Registrar shall register the company in the register of companies and issue a Certificate of Incorporation and indicate the proposed company is incorporated under the Companies Act 2013 as a separate legal entity from its owners. The registrar's certificate of incorporation serves as definitive proof that:

The association satisfies all the requirements of the Companies Act for registration;
The association is a company that is permitted to be registered; and
The association has been properly registered under the Companies Act.

Allotment of CIN: The Registrar will assign the company a 21-digit Corporate Identification Number (CIN) on and from the date specified in the Certificate of Incorporation. This number will serve as a unique identification for the company.
Allotment of PAN: The Permanent Account Number (PAN) for a newly incorporated company is issued during the registration process. The Income Tax Department generally sends the Physical PAN via post to the company’s registered office address within 15-20 of incorporation. To receive the PAN card, it is necessary to ensure proper arrangements. It can be challenged to retrieve the PAN if it is returned undelivered. Apply for a duplicate PAN card if your company doesn’t receive it within 15-20 days.

Conclusion

Promotion and incorporation are two stages that are essential for the establishment of a company under the Companies Act 2013. While promotion involves planning and initiating the business idea, incorporation gives the company its legal recognition. Want to register a company in India? Connect with Registrationwala’s company registration consultants for assistance in drafting MoA and AoA, filing Spice+ form, and securing Certificate of Incorporation.

Frequently Asked Questions (FAQs)

Q1. Can a Chartered Accountant, acting in their professional capacity, be a company’s promoter?

A. No, a CA acting solely in their professional capacity cannot be a promoter of a company.

Q2. Do promoters of a company have any legal rights?

A. Yes, promoters of a company do have certain legal rights. These include right to compensation for their services and right to enter into preliminary/pre-incorporation contracts (as long as they are authorized for the same).

Q3. Can a company’s shareholder sue the promoter?

A. Yes, an aggrieved shareholder may sue the promoter if their actions have caused damage to the company.

Q4. Is a company promoter hired after company incorporation or prior to it?

A. A company promoter is hired prior to the incorporation of the company. This is because the role of a promoter is to initiate the formation of the company.