Formation of Villages as suggested in Arthashastra can take place due to two factors- either by inducing foreigners to immigrate or by forcing the people of thickly populated areas to shift outside. Formation of villages has been a major part of king's administration which has been described in a large manner in Arthashastra. According to Arthashastra the villages shall consist of hundred families and not more than five hundred families. The boundaries will be marked by the rivers, mountains, forests, and other natural forms of demarcation which is not supposed to extend beyond 2250 yards. There shall be set up a sthanlya (a fortress of that name) in the centre of eight hundred villages, a dronemukha in the centre of four hundred villages, a kharvatika in the centre of two hundred villages, and a sarigrahana in the midst of a collection of ten villages. There shall be constructed in the extremities of the kingdom forts manned by boundary-guards (antapala), whose duty shall be to guard the entrance into the kingdom. The interior of the kingdom shall be watched by trap-keepers (vagurika), archers (abara), hunters; (pulinda), chandalas and wild tribes (aranyachara).

Formation of village then specifies the distribution of the land among those priests who offer sacrifices and religious functions for the states, among the superintendents, accountants, gopas, sthanikas, vetenory surgeons, physicians, horse trainers and messengers who shall not possess the power to sell or mortgage the land. Land will be given to the tax payers only for life and the unprepared land will not be taken away from those who make efforts to cultivate it. Further land has been a major source of earning for the state. As for the rewards were concerned the king should not distribute any reward which will reduce the source of treasury and shall not hesitate in granting such rewards which will add to the treasury as the use of unused land. The land of the village will be further utilised for construction of reservoirs or any such activities which will call for cooperative effort of all in the interest of the community. Besides giving protection to the dependents like the helpless women and the aged people, the village will restrict the entry of any ascetic or forest hermit, any company other than the local births, or any guilds other than the local cooperative guilds.

Thus, the king shall be responsible for providing security for all the villagers, those working in the cultivable fields as well as the dependents of the area .The king shall protect all that already existed and create new assets for the state and his people. The formation of the village is mainly intended to unite the kingdom and its people while expand its boundaries.