Procedure for incorporation of a public Company.

 Q. Explain the steps to be taken or a procedure to be followed for the incorporation of a Public Company. 

Ans. Incorporation is the second stage of company’s formation, which is done by getting the company registered with the Registrar of Companies. The required fee for registration is paid and the certificate of Registration is obtained from the Registrar of companies. The company becomes an entity only after it is registered. It is, therefore, said that floatation is the conception of a company whereas the incorporation is its birth when it takes on the form of an artificial person. So long as a company is not incorporated, it cannot be called a ‘company’ from the legal viewpoint and it has not entity as such. After completing the promotional work and before getting the company registered, the preparatory steps are as under:

Procedure for incorporation of a public Company.

1. Preliminary Activities: Before a company is incorporated, the promoter has to do the following: 

(i) To decide where the registered office of the company will be located: The promoters, as a first step, must decide in which state will the headquarters of the company be located. It is necessary to do so because the company must be registered with the Registrar of Companies of the state where it has its head office.

(ii) To decide the name of the company: Before it is given a name, it is necessary to ascertain from the Registrar of Companies whether the proposed name of the company is available or not, and whether the name is acceptable. Although a company can be given any name, yet it must conform to the provisions of the Indian Companies Act — i.e., the company’s name should not be similar to that of an existing company and should be appropriate as per the directives of the Central Government. The word ‘Limited’ must be used at the end of the company’s name. For the acceptance of the company’s name, the promoters need to make an application, through the Registrar of Companies, to Company Department of the Central Government. For the availability of name, it is mandatory to sen̈d at least three names for approval of any one of them.

(iii) To make appointments: It is also required to appoint underwriters, brokers, bankers, solicitors, auditors and signatories on the memorandum of the company. 

(iv) To get the important documents prepared: The preliminary activities include preparing the memorandum and articles of association of the company and getting them printed.

(v) To send the application to the Registrar: After completing the above mentioned formalities, the promoter makes an application to the Registrar of Companies of the state in which the company is to established for the registration of the company. The documents that need to be filed with the application are as under:

2. Documents to be Filed with the Registrar: 

(i) Memorandum of Association: This is a very important document. No conce company can be incorporated without having a Memorandum of Association. A company’s memodandum of association is its charter and under the provisions of the act defines its rights and obligations. The memorandum defines the basic objectives for which the company is allowed to be incorporated.  For a public company, a minimum of seven and for the private company, a minimum of two persons need to be signatories, i.e. subscribers to the memandum of association. Each signatory must give his address, description and occupation etc. and number of shares subscribed by him. The subscribers must sign these documents in the presence of atleast one witness who shall attest the signature. The documents should also bear the date.

(ii) Articles of Association: This document defines the rules that the activities of the company in the attainment of its objectives. The document must be properly stamped, duly signed by the signatories of the memorandum and witnessed. The articles must be printed and in paragraphs. The articles of association are optional in the case of a public limited company with limited liability, which may adopt Table A, the model set of articles, in its entirety. If the company adopts Table A, the fact must be specified by writing ‘Registered without Articles’ on the memorandum.

(iii) Information about the Head Office of the company: The address and location of the company’s registered office must be communicated to the Registrar of Companies. This information can also be given within 30 days of the registration of the company.

(iv) List of Directors: A list of persons who have agreed to function as the first directors of the company must also be communicated to the Registrar. The list of directors must have their names including surname or family name. Director Identification Number, residential address, nationality, proof of Identification etc.

(v) Written Consent of Directors: Not only is a list of the directors mandatory, it must also be sent by the secretary of the company along with their written consent to act in that capacity. The written statement must be signed by each director who has agreed to work in that capacity. An affidavit from each of the subscribers to the memandum and from persons named as the first directors, if any, in the article, that he is not convicted of any offence in connection with the promotion, formation or management of any company, or has not been found guilty of any fraud or misfeasance or any breach of suty to any company under this Act or any previous company law during the preceeding five years and that all information filed in the documents with the Registrar for registration of the company is correct and true to the best of his knowledge and belief.

(vi) Statutory Declaration: A declaration in the prescribed form by an advocate, chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of company, and by a person named in the articles as directors, managers, or secretary of the company, that all the requirements of this act and rules made thereunder in respect of registrations and matters precedent or incidental thereto have been compiled with. 

(vii) Payment of Prescribed Fee: A filing fee has also to be deposited along with the aforesaid documents. 

If, having received the above documents and having scrutinised them, the Registrar is convinced that the necessary formalities required by law have been compiled with and the prescribed fee has been deposited, he will enter the name of the company in the Register of Companies maintained by him and issue a certificate of Incorporation under his signature testifying that the company has been officially incorporated and that it is a ‘limited’ public or private company. 

The Registrar of Companies issues (allocates) a Corporate Identity Number (CIN) to each registered company.

It must be stated that if the documents are in order and the object of the company is legal, the Registrar has no discretion in the matter and he must grant the certificate of incorporation.

If the documents produced before the Registrar are returned for rectifications of certain defects and the applicant instead of rectifying the defects, drops the matter, he cannot claim refund of fees paid for registration.

How to determine financial requirements of business?

 Q. How you will determine the financial requirements of a business? Explain. 

Ans. Determining the financial requirements of the business is one of the main objective of financial planning. Before raising funds, it is essential that requirement of funds be correctly estimated. In the absence of correct estimates the firm may suffer either from inadequate or from surplus funds. If the funds are short of its requirements, the firm will not be able to meet its day-to-day expenses and pay the short-term and long-term liabilities on time. On the other hand, if the funds are an excess of the requirements of the business, they will remain idle and will reduce the profitability of the business. Hence, the estimate should be made in a way that all financial requirements are properly satisfied. 

Funds requirements of business can broadly be classified into two main categories.They are:

(i) Fixed Capital Requirements, and

(ii) Working Capital Requirements.

Assessment of Fixed Capital Requirements: Fixed capital is the capital which is meant for fulfilling the permanent or long-term term needs of the business. Fixed Capital is the funds required for the acquisition of those assets that are to be used over and over for a long period. 

Fixed capital is required for acquiring fixed assets. Fixed assets may include the following:

(i) Tangible assets such as land, buildings, plant and machinery, furniture etc.

(ii) Intangible assets such as goodwill, patents, copyrights etc. 

Certain amount of fixed capital is also required for meeting certain expenditures not leading to creation of asset like research expenses, promotional expenditure incurred for the establishment of business, share issue expenses, underwriting commission etc. Requirement of funds for these expenditures is long-term and hence the funds required in respect thereof is also included under fixed capital.

Every business needs a fair amount of fixed capital to be invested in fixed assets so as to create production or business facilities. For a new business, the fixed capital is needed in the beginning because fixed assets are needed at the time of promoting or establishing the business. For an existing business fixed capital is required for development and expansion of business. Hence, it is essential to have adequate amount of fixed capital in the business.

The assessment of fixed capital requirements for a new business can be made by preparing a list of fixed assets needed by the business. The list is prepared by the promoters by studying the similar units and by taking advice from technical experts. The estimation of cost of land can be made from property dealers, estimation regarding cost of building can be made with the help of building contractors and the cost of machinery can be ascertained from the suppliers of the machinery. Similarly, the amounts to be paid for goodwill, patents, trade-marks etc. can also be estimated. 

Factors Affecting the Estimation of Fixed Capital/Fixed Assets Requirements: Factors which affect the estimation of fixed capital or fixed assets requirements can be : (a) Internal Factors, and (b) External Factors.

(a) Internal Factors

(i) Nature of Business: Certain types of business require heavy investment in fixed assets, while others do not. Usually, the manufacturing concerns require more fixed assets than the trading concerns. Similarly, public utility undertakings like railway, electricity, water supply etc. require huge funds to be invested in fixed assets.

(ii) Size of Business: Larger the size of concern, greater will be the requirement of fixed capital. Also, in larger concerns most of the activities are preferred with the help of automatic machines. As such, they require huge investment in fixed capital.

(iii) Types of products: A concern which manufacturers simple consumer products such as soap, oil etc. will need lesser amount of fixed capital in comparison to a concern which manufacturers complicated products such as motor cycle, cars etc.

(iv) Activities Undertaken by the Enterprise: A concern which is engaged in the manufacturing of all parts of a product by itself will require greater amount of fixed capital as compared to a concern which gets most of the parts manufactured from outside and merely assembles them. Similarly, if a concern itself manufacturers and markets its products, it will require more amount of fixed capital as compared to a concern which is engaged only in the manufacturing or only in the marketing activities.

(v) Mode of Acquisition of Fixed Assets: If some of the fixed assets are available on lease or on hire, lesser amount of fixed capital will be required. On the contrary, if all the fixed assets are to be purchased on immediate cash payment, larger amount of fixed capital will be needed.

(vi) Acquisition of Old Assets: In certain industries, old plant and machinery may be available at sufficiently reduced prices and which can be used satisfactorily. It would reduce the requirements of fixed capital to a great extent. But the old plant and machinery should be used in the industries where the technological changes are moderate or slow.

(vii) Availability of Fixed Assets at Concessional Rate: In some areas, the Government provides land and other equipment at concessional rates to promote balanced industrial growth. In such a case, the requirement of fixed capital is reduced.

(b) External Factors 

(i) General Economie Outlook: If the economy is recovering from depression and the level of business activity is expected to rise, the requirement of fixed assets will also rise and hence the need for fixed capital will also rise.

(ii) Technological Changes: If rapid technological innovations are taking place in an industry, the need for fixed capital will be larger because the old and out-dated machinery will have to ɓe replaced by new ones.

(iii) Degree of Competition: Degree of Competition also affects the fixed capital requirements. If there is a lot of competition in some industry, the need for fixed capital will be more because if some firms go on adopting the new technology, the others have to follow them.

(iv) Shift in Consumer Preferences: If the consumer preferences go on changing in some industry, the need for fixed capital will be more because the firm will have to produce new varieties accordingly, which require more investment in fixed assets.

Assessment of Working Capital Requirements: The capital which is needed to conduct/carry day-to-day operations of a business enterprise is called Working Capital. The term ‘Working Capital’ is used in two ways. In one sense it denotes the ‘total current assets’ whereas in another sense it is regarded as the excess of current assets over current liabilities. 

Total amount of working capital can be estimated by estimating the needs of working capital for the following:

(i) For maintaining adequate stock: Every industry undertaking is required to maintain a minimum stock of raw materials, work in progress and finished goods. The requirement of stock is determined by various factors like volume of production, the length of production cycle and the period for which the finished goods have to remain in warehouse before they are sold.

(ii) For Receivables: Finished goods may be sold on cash or on credit.  Credit sales take the form of receivables (i.e., debtors and bills receivables). The a mount is tied up in receivles until cash is realised from them. The amount tied up in receivables until cash is realised from them. The amount tied up in receivables depends upon a number of factors such as quantum of credit sales, credit period allowed, efficiency of debt collection system etc. For example, if a firm changes its credit period from 30 days to 60 days, the amount tied up in debtors will go up and consequently the need for working capital will also increase by a similar amount.

(iii) For Paying Day-to-Day Expenses: A firm has to carry some minimum cash balance to make payment for wages, salaries and other expenses throughout the year. A proper cash balance is also maintained to avail of the cash discounts facilities offered by the suppliers.

(iv) For Contingencies: A minimum cash balance is also maintained for meeting unseen contingencies so that the business successfully sails through the period of crisis.

Thus, the overall financial needs of a business can be determined by assessing the needs for fixed capital and working capital separately and then by adding the two.

Importance of Agriculture in Haryana and measures for improvement.

 Q. Discuss the importance of agriculture in Haryana. What measures would you suggest for the improvement of agriculture in Haryana.

Ans. Importance/Role of agriculture in Haryana is evident from the following facts:

(1) Contribution to State Gross Domestic Product: Percentage contribution of agricultural sector to the income of Haryana is considerable, but now, it has been declining gradually. In rich countries of the world, agriculture is sufficiently developed but its contribution to the national income is very little. In underdeveloped countries, share of agriculture in the national income is more as compared to share of agriculture in developed countries.

(2) Supply of Wage Goods: Main objective of agricultural sector is to supply wage goods. The goods which are consumed by the masses to satisfy their necessities of life are called wage goods. These include agricultural products like wheat, rice, pulses, maize, bajra, oilseeds, etc. Agriculture sector provides food to people and fodder to cattle.

(3) Increase in Employment: Agriculture is the main source of employment in Haryana. More than half of the population of haryana is engaged in agriculture. Dependence of more than half of the population on agriculture speaks, on the one hand, of the significance of this sector to the state economy, on the other hand, it underlines, the backwardness of the economy. It is so because the productivity of labour is very low in agriculture. Proportion of population, depending on agriculture, has been declining with the increase in economic development.

(4) Agriculture and Industry: Agriculture has an important contribution to the growth of industrial sector in various ways: (i) Industries get raw materials like cotton, sugarcane, oil seeds, cereals etc. from agricultural sector. Many cottage and small scale industries like handloom, oil extracting, rice-mills etc. depend on agriculture for their raw materials. (ii) Income of the people rises under the impact of agricultural development. They demand more goods produced by the industrial sector. As a result, market for industrial products expands. Hence, development of agriculture is very essential for industrial development.

(5) Agriculture and Foreign Trade: Agriculture is of great importance to foreign trade. Haryana is the largest exporter of Basmati Rice among all the states of the country. Horticulture products like baby corn, strawberry, mushroom, vegetables, etc. of Haryana are also exported to other countries. 

(6) Role in Internal Trade: According to National Sample Survey Organisation, in India, in the year 2009-10, 57 per-cent of income was spent on food in the rural areas and 44 per cent of the income was spent on food in urban areas. Thus, agriculture plays an important role in the internal trade. Food trade provides employment to a large number of people and also generates tax revenue for the government. 

(7) Agriculture and Transport: Agricultural production in Haryana is characterised by regional disparities. In some states of Haryana like Karnal, Kaithal, Sirsa, Fatehabad, Jind, etc. production of food grains has increased very much under the impact of green revolution. These districts have not only become self-sufficient in the matter of food grains but other districts also purchase food grains from them. As a result, means of transport like trucks, railways etc. have been earning good revenue by carrying agricultural products from surplus districts to deficit districts.

(8) Capital Formation: Large part of capital is invested in agriculture. From the point of view of fixed capital assets, farm-lands occupy the highest place. Capital worth millions of rupees is invested in the means of irrigation, cattle, agricultural implements, tractors and other agricultural machines, warehouses, etc. Disguised unemployment in Indian agriculture is also a potential source of capital formation. In Haryana, farmers suffer from disguised unemployment. This surplus labour of agricultural sector can be employed in industries and service enterprises. It will help to increase production and productivity in the economy.

(9) Source of Saving: After green evolution, agriculture may constitute an important source of saving. So far, green revolution has benefited rich farmers only. They have grown richer. The additional income earned by them has resulted in higher savings and investments. If benefits of green revolution are extended to all farmers, then income of farmers can be increased and thus saving potential can be very large in agricultural sector.

(10) Basis of Economic Development: Agriculture serves as a basis of the economic development of any country. Because firstly , development of agricultural sector provides inputs to industries for their development. Secondly, agriculture requires relatively less capital for its development. Thus, by making use of the available resources, agriculture can be developed. Agricultural development will help in the development of industries, transport, foreign trade, etc.

(11) Social and Political Importance: Development of agriculture has its social and political significance. Haryana is mainly a state of villages. As a result of agricultural development, economic, social and political life of the villages will improve. They will take more interest in development programmes. Such type of public cooperation is very essential for all round progress of the state. Roughly, two-third of the total electorates live in villages. As such, different political parties make all efforts for their improvement through the development of agriculture.

In brief, agricultural development has a significant role to accelerate the rate of economic development. Appropriate development of the agricultural sector is almost pre-condition for the success of any development plan of the state. 

Measures to improve agriculture in Haryana:

(1) Reduction in Pressure of Population: it is essential that the pressure of population on the soil is reduced. It requires the growth of industries and service enterprises so that the surplus farm-population can be usefully engaged elsewhere. Small and cottage industries must be developed in the rural areas of the state so as to absorb the surplus work force of agriculture sector.  [To avoid sub-division of land.]

(2) Canal Irrigation: [Improvement in irrigation system from tube tubewell irrigation to canal irrigation.] With a view to reducing the dependence of state agriculture on tubewell irrigation, it is essential that permanent means of canal irrigation are developed. There should be more canals and rainwater harvesting. This type of irrigation will help to check ground water depletion.

(3) Mechanisation: [More tools should be provided to farmers.] More and more mechanised means of cultivation need to be introduced to suit the needs and means of the farmers. Also, there should be proper arrangement for their sale and maintenance. Exhibitions of agricultural tools and implements should be organised to arouse awareness of mechanised farming amongst the farmers. Arrangements should be made to sell implements to the farmers on instalment basis.

(4) Scientific Cultivation: Scientific methods of cultivation should be propagated. Farmers should be educated about rotation of crops, use of right kind of fertilisers, inputs-mix, modern techniques of agriculture, etc. Farmers should be taken to state demonstration farms to show the new and scientific methods of cultivation. Farmers using new techniques must be encouraged through awards. More research on the crops, seeds, land and fertilizers should be promoted.

(5) Good Quality Seeds: Farmers should be given complete knowledge regarding high yielding varieties of seeds. Quality seeds should be sold through cooperative societies or ‘Village Panchayats.’ Small farmers should be given these seeds at concessional rates. More research is needed regarding quality seeds. Hybrid seeds and seed certification should also be promoted in the state. High yielding variety seeds may be procured from  abroad.

(6) Use of Manure: Farmers should be educated on the use of green manure. Cow dung,  bio-fertilizers, vermi-composting, etc. should also be used as fertilisers. Production of chemical manures should be raised and be made available to the farmers at reduced rates.

(7) Credit Facilities: Farmers must get more credit at reasonable rates of interest. More and more cooperative banks, regional rural banks, land development banks should be opened. Credit facilities of ‘Mahajans’ must be properly scrutinised. Commercial banks should be spread in the rural areas. Government must offer loans to the farmers whereever there are natural calamities.

(8) Land Reforms: Land reforms are very vital to the progress of agriculture. Zamindari system be abolished and ownership of land be bestowed upon those farmers who actually cultivate it. Ceiling on land holdings be imposed. Evils of soil erosion and water logging be removed. In Haryana, still, a lot of cultivable land is lying waste. It should be treated and put to agriculture use. Land reforms like tenancy  reforms, consolidation of landholdings, computisation of land records, etc. should be promoted in the state. Among tenancy reforms, cultivators should not be evicted (forced to leave a place, especially a house, room, or property. निकाल दिया गया) so long as they continue to pay rent. Moreover, at the time of their eviction, they must be compensated for all permanent improvements made by them on the soil.

(9) Agricultural Marketing: Agricultural marketing must be improved so that the farmers gets appropriate price for his profuce. More number of regulated markets and cooperative marketing societies should be established. Warehousing facilities should be improved. Means of transport should also be improved.

(10) Mixed Farming: Mixed farming should be encouraged so that crop cultivation, animal husbandry, vegetable and fruit growing should be practiced side by side. Dairy farming and horticulture crops should be particularly encouraged with a view to improving the economic conditions of the farmers.

(11) Spread of Education: Education must be spread in the rural areas as much as possible. Farmers must be educated in general and farming operations in particular. It will remove orthodoxy and superstitions among them. With the knowledge of new techniques of cultivation, they will strive to increase production. Free education be given in the villages.

(12) Improvement in the Breed of Livestock: Artificial insemination should be used for improving cattle breed. Provision of good fodder will keep the cattle health. Cattle diseases should be immediately attended. More and more veterinary hospitals need to be opened to treat sick cattle.

(13) Reduction in the Risk of Farmers: Farmers are exposed to a variety of risks related to uncertain rainfall in particular.  The crops are also destroyed by the menace of insects and pests,  besides floods sometimes. All this adversely affects economic condition of the farmer, and therefore farming. Crop insurance may serve as a useful remedy in this context. Use of insecticides and pesticides should be encouraged to check the menace of insects and pests.

(14) Help to Small Farmers: To maintain the impact of green revolution, it is essential that small farmers are helped with HYV seeds, fertilizers and new farming techniques. Also, they should be given a loan at concessional rates of interest to enable them to make use of new technology. Economic prosperity of the farmers would contribute to the prosperity of the state as a whole. 

(15) Price Stability: Benefits of green revolution are mixed with the fear that owing to increased productivity, crop prices may fall. The government should ensure that farmers get reasonable price for their produce. Otherwise, farmers will not adopt improved techniques and agricultural growth will not be enhanced.

(16) Efficient Administration: Development plans regarding agriculture can be successful only if there is efficient administration of the plans. Only such officials should be associated with Rashtriya Krishi Vikas Yojana, National Food Security Mission, Bharat Nirman, Integrated Rural Development Programme, Cooperative Societies and various other rural development programms, etc. who are abreast with the rural life and are committed to the cause of rural upliftment. 

(17) More Public Sector Investment in Agriculture: In India, percentage share of public sector investment in agriculture is declining. To accelerate the growth in agriculture sector both central government and state government should increase public sector investment in agriculture. It will help to promote research, market development, storage and warehousing facilities, irrigation facilities, soil testing facilities, availability of guidance cells like kisan cell centers, etc.

(18) Corporatisation of Agriculture: It means corporate bodies undertake agricultural activities. These ompanies develop large sized agricultural farms. Corporatisation of agriculture will infuse more funds in agriculture sector. It will help in availing economies of large scale production and use advanced technology. Mechanisation of agricultural operations is more effective on large farms. All this will help to increase agriculture productivity.

(19) Other Suggestions:

(i) Demand for fruits and vegetables has grown very much due to increasing urbanisation and changing food pattern. Agricultural research should therefore be mainly directed towards improving the productivity of fruits and vegetables cultivation. This will help in increasing their supply according to demand.

(ii) Policy of liberalisation should also be applied to agricultural sector as it has been applied to industrial sector.

(iii) Under export-import policy, export of agricultural products be encouraged. Essential agricultural inputs should also be imported to enhance agricultural productivity.

Explain Preliminary Expenses

 Q. Explain in brief Preliminary expenses. 

Ans. Expenses incurred on the formation of a company are termed as ‘Preliminary Expenses’. These include the following:

I. Expenses incurred on the preparation and printing of various documents needed for the registration of a company.

II. Stamp duty and registration fees on these documents. 

III. Duty payable on Authorised Capital.

IV. Expenses incurred on the preparation, printing and issue of prospectus.

V. Cost of Preliminary books and the Common Seal.

VI. In case the company has been formed to purchase a running busines, the fees charged by Accountant or Valuer valuing the assests and liabilities of that business.

As per AS-26, Preliminary expenses must be written off against Securities Premium Account or in its absence from Statement of Profit & Loss in the same year in which they are incurred.