The appropriate sequence of the formation of a company are in the following order:

Question

Accepted Answer

The correct option is 2:
The formation of a public limited company typically follows four well-defined and compulsory legal stages, making 'Promotion, incorporation, capital subscription and commencement of business' the appropriate sequence. The process begins with **Promotion**, which encompasses the conception of the business idea and all necessary preliminary work undertaken by promoters to bring the company into existence. This foundational stage is followed by **Incorporation** (Registration), where the company files its documents with the Registrar of Companies and obtains the Certificate of Incorporation, officially giving it a separate legal personality. Next is the **Capital Subscription** stage, which is crucial for public companies as they invite the public to subscribe to their shares to raise the necessary working capital. Finally, the company receives the Certificate of **Commencement of Business** after fulfilling all statutory requirements, allowing it to begin commercial activities.

The incorrect option is 1:
Promotion, commencement of business and incorporation
This sequence is incorrect because it places the **commencement of business** *before* **incorporation**. Legally, a company must first be registered (incorporated) to obtain a distinct legal entity before it can enter into contracts and formally begin its commercial operations. The Certificate of Incorporation is the company's 'birth certificate,' which must precede the final authorization to commence business. Additionally, this option incorrectly omits the *capital subscription* stage, which is a key legal requirement for a public company seeking to raise funds from the general public.

The incorrect option is 3:
Capital subscription, promotion, incorporation and commencement of business
This option errs by listing **Capital subscription** as the initial stage. Capital subscription, which involves raising money from the public, is a secondary activity that is legally permitted only after the company has been formally promoted and then legally registered (incorporated) with the Registrar of Companies. An un-incorporated entity has no legal standing to issue a prospectus or allot shares. Therefore, the sequence must logically and legally begin with the conceptual phase (Promotion) followed by the legal creation (Incorporation).

The incorrect option is 4:
Incorporation, capital subscription, commencement of business and promotion
This sequence is fundamentally flawed as it lists **Promotion** as the final stage, which is conceptually incorrect. Promotion is inherently the *first* stage, as it is the process of generating the business idea and assembling the resources to form the company. You cannot incorporate an entity that has not yet been conceived or promoted. By placing the act of creating the idea (Promotion) after the legal existence (Incorporation) and the start of operations (Commencement of Business), this option reverses the logical and procedural flow of corporate formation.