Part-II Corporate Organisation, Finance and Trade: Class 11 NCERT Guide

Role and Functions of Promoters in Company Formation

Promoters are the key figures who initiate the formation of a company. Their main functions include:

• Identifying Business Opportunities: They spot new business ideas or market gaps.
• Conducting Feasibility Studies: They assess technical, financial, and economic viability.
• Technical feasibility ensures resources and technology are available.
• Financial feasibility checks if funds can be arranged.
• Economic feasibility evaluates profitability.
• Name Approval: They apply to the Registrar of Companies to approve a unique company name.
• Drafting Legal Documents: Promoters prepare the Memorandum of Association (MOA) and Articles of Association (AOA) with help from professionals.
• Assembling Resources: They arrange capital, manpower, and other essentials.
• Registration: Submit all documents to get the company registered and obtain commencement certificates.

Promoters act as agents before incorporation but have no authority after the company is formed. They must disclose all material facts and avoid conflicts of interest.

Understanding Memorandum of Association (MOA)

The Memorandum of Association (MOA) is the fundamental legal document that defines a company's constitution and scope. It contains the following key clauses:

• Name Clause: Specifies the company's legal name.
• Registered Office Clause: Location of the company’s registered office.
• Object Clause: Main and ancillary objectives of the company.
• Liability Clause: Extent of liability of members (limited or unlimited).
• Capital Clause: Details about the company’s authorized share capital.
• Subscription Clause: Names of the first subscribers and number of shares they take.

The MOA limits the company’s activities to the objectives mentioned. Any act beyond these is ultra vires (beyond powers) and void. It must be signed by promoters and submitted during registration.

Articles of Association (AOA): Internal Rules of the Company

While the MOA defines the company's scope, the Articles of Association (AOA) govern its internal management. The AOA includes:

• Rules for issuing shares and transfer of shares.
• Rights and duties of directors and shareholders.
• Procedures for conducting meetings and voting.
• Dividend distribution policies.
• Appointment and removal of directors.

The AOA acts as a contract between the company and its members. It ensures smooth functioning and decision-making within the company.

Sources of Finance for Companies

Companies require funds to start and expand their business. The main sources of finance include:

• Equity Shares: Ownership shares sold to investors. Shareholders get voting rights and dividends.
• Preference Shares: Shares with fixed dividends and priority over equity shares in repayment.
• Debentures: Long-term debt instruments with fixed interest but no ownership rights.
• Loans: From banks or financial institutions, repayable with interest.
• Retained Earnings: Profits reinvested in the business.

Worked Example: If a company issues 10,000 equity shares at ₹100 each, the capital raised is:

$$\text{Capital Raised} = 10,000 \times 100 = ₹1,000,000$$

Choosing the right mix depends on cost, control, and risk factors.

Trade: Domestic and International Perspectives

Trade involves the exchange of goods and services to satisfy human wants. It is classified into:

• Internal Trade: Trade within the country, including wholesale and retail.
• External Trade (Foreign Trade): Trade between countries, including imports and exports.

Trade promotes specialization, increases production, and improves living standards. It also creates employment and generates government revenue through taxes and customs duties.

Key Terms:

• Import: Buying goods from other countries.
• Export: Selling goods to other countries.

Understanding trade helps students appreciate how businesses operate in a global economy.