PROCEDURE FOR THE FORMATION OF JOINT STOCK COMPANY

PRESENTED BY RAJ MOYAL

• The formation of a Joint Stock Company can be divided into the following four stages:1. Promotion Stage2. Incorporation Stage3. Raising of capital Stage4. Business Commencement Stage

• Promotion of a company means developing an idea and subsequently arranging for necessary resources to achieve the idea and making profits.

• The people who take up this initiative are called ‘Promoters’.

• They procure man, materials, money and machines for this purpose.

1. Approval of name - To enable a company to get into preliminary

contracts, it is necessary for the promoters to select a name.

- There is no restriction on selecting a name, except that it should not resemble the name of an existing company or carry the Government name or emblem (unless a Govt. company).

- There should be no objection by anyone with respect to its proposed name.

The promoter makes an application to the Registrar of

Companies of the State in which

the Office of the company is to

be established for registration of

the company.

The application for registration must be accompanied by the

following documents.1.Memorandum of association2.Articles of Association3.A list of persons who have agreed to become Directors

with their addresses etc.4.Written consent of the proposed Directors to act in that

capacity, duly signed by each Director.5.The notice about the exact address of the Registered

Office of the company. It may be filed within 30 days of incorporation or registration.

6.A copy of the name approval letter received from the Registrar of Companies.

7.A statutory declaration that all the legal requirements of the Companies Act in regard to incorporation have been complied with.

• Along with the above documents, necessary filing fees and registration fees at the prescribed rates are also to be paid.

• The Registrar will issue a Certificate of Incorporation. The moment the certificate is issued, the company comes into existence. So this certificate may be called as the Birth Certificate of a Joint Stock Company.

It is a principal document in the formation of a company. It is called the charter of the company. It controls the relations of the company with outside parties. It fixes the aims, the name and registered office, etc. of the company.

It contains the following six clauses:

• Name clause,• Situation clause• Objects clause,• Liability clause,• Capital clause,• Subscription clause.

Articles of Association of a company generally contain rules and regulations with regard to the following matters:

a)Preliminary contracts b)Allotment and call on sharesc)Transfer and transmission of shares d)Re-issue of shares e)Alteration of share capital f) Issue of share certificates and share warrants g)Conversion of debt into shares

g) Procedure of holding and conducting company meetings

h) Voting rights of members i) Qualification, appointment, remuneration and

power of Directors j) Borrowing powers and methods of raising loans k) Payment of dividends and creation of reserves l) Accounts and auditm) Winding up

After getting the Certificate of Incorporation or Registration a public limited company invites the public to subscribe to its shares.

This is done by issuing a document called Prospectus.

Under the Companies Act, a prospectus has been defined as "any document described or issued as a prospectus and includes any notice, circular, advertisement or other document, inviting deposits from the public or inviting offers from the public for the subscription or purchase of shares or debentures of a company or body corporate”.

Contents of Prospectus1.Name and address of the company2.Main objects of the company3.Details of shares4.Details regarding listing of shares at stock

exchange5.Details of share qualification and dividend

structure6.Details of share qualification of directors

8. Names of directors, secretaries, promoters, bankers, managing agents etc

9. Minimum subscription details10. Details of subscription list11. Details of calls on shares12. Details on underwriters13. Details of estimated preliminary expenses14. Details regarding reserves and surplus likely to

be maintained15. Details on voting rights, meetings of

shareholders, Directors etc

A private limited company can commence business on receipt of certificate of incorporation.

A public company has, however, to wait to commence business till a certificate of commencement of business is received from the registrar of the joint stock companies.

• For this purpose it has to file a statement with the following declarations to the Registrar of Companies.

• (a) That a prospectus has been filed with the Registrar of Companies.

• (b) That the shares have been allotted up to the amount of the minimum subscription.

• (c) That the Directors have taken up or purchased the minimum number of shares required to qualify themselves to be Director.

• (d) That no money is liable to become refundable to the applicants by reason of failure to obtain permission for shares to be traded in a recognised stock exchange.

THANKS