Question 2 of 10beginner🧠 RememberShort Answer3 marks

Name the stages in the formation of a company.

Correct Answer

There are three distinct stages in the formation of a company:

  1. Promotion: This is the first stage which begins with a potential business idea. It involves conceiving the business idea, conducting feasibility studies (technical, financial, and economic), and taking the initiative to form a company.

  2. Incorporation: This is the second stage where the company is legally registered after completing necessary legal formalities and procedures.

  3. Capital Subscription: This is the third stage required for a public company to raise funds from the public. A private company does not need this stage as it is prohibited from raising funds from the public.

Thus, a private company has only two stages (Promotion and Incorporation), while a public company undergoes all three stages to commence business.

Exercise: Short Answer Questions | Q: 1 | (Chapter: 20)
For More Understanding

Explanation

The textbook clearly outlines three distinct stages in company formation: Promotion, Incorporation, and Capital Subscription. The key distinction is that private companies only need the first two stages, while public companies require all three stages including capital subscription to raise funds from the public. This is a fundamental concept in the Formation of a Company chapter.

Solution Steps

  1. Step 1: Identify the three stages of company formation from the context

  2. Step 2: Explain each stage briefly

  3. Step 3: Distinguish between private and public company requirements

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