Ektaa Utkarsha Classes Formation of Joint Stock Company In India the formation of Joint Stock company is governed by the

Indian Companies Act 1956. Every company whether public or private has to undergo following stages 1. 2. 3. 4. Promotion Stage Incorporation Stage Capital Subscription Stage. Commencement of Business Stage.

Private company and public company without share capital can start their business after the first two stages. For public company with share capital has to undergo all the four stages. I ) Promotion Stage : A company comes into existence only when someone takes lead to form it. Such a person is called promoters. The promoters are the founder members (Pioneer members) of the company. Promotion can be undertaken for any of the following purposes. * For starting a new business. * Expanding the existing business. * For combining firms by mergers and amalgamation Steps of Promotion Stage : 1. Discovery of an Idea : the work of promoters begins when an idea strikes his regarding some business which can be profitably undertaken. Thus when a person understands that there is a possibility of starting or expanding some business, the idea is said to be discovered. 2. Detail Investigation of the idea : Before the idea is exploited the detail investigation must be undertaken by the promoters themselves or with the help of experts. The investigation will be of * sources of raw materials *extent of Demand * amount of capital etc. 3. Verification of the Idea : the promoters must verify the report submitted by the investigators. Mistake do take place in relation to figures and data, so it is advisable to verify the reports. 4. Assembling : once the promoters are satisfied with the idea then the assembling takes place. At this stage lot of activities are undertaken such as * selection of site for project * Purchase of land and Building * Securing patents etc. 5. Financial plan : The promoters while preparing the financial plan have to keep in mind certain points such as *Amount of funds required * Best possible sources of funds * Adequate margin for contingencies. 6. Presenting the proposition : the promoters may contact some more persons to join them in their business, so they place proposal before them and if they are convinced they join as the new promoters. II ) Incorporation Stage : it is also known as Registration Stage. Incorporation gives birth to the company. On incorporation the gets Incorporation Certificate, Steps of Incorporation Stage : 1. Name of the Company : The promoters must submit an application to Registrar of Companies for the allotment of name for the company. The application must consist more than one name because at least once can be approved by the registrar. 2. Document to be filed with Registrar : To get the company Registered following documents must be filed with registrar. * Articles of Association : it gives internal rules and regulation of the working of the company. * Memorandum of association : it gives objectives of the company. * List of Directors : with names, addresses, occupation and age. * Written Concept : by every director to act as director and to purchase qualification share. * Statutory Declaration : by the company that all the formalities according to companies act have been complied with 3. Examination : the registrar examines the document, whether or not all documents are in order and all details in the documents are properly filled in. 4. Issue of Incorporation Certificate : if the registrar is satisfied with the documents, he issues incorporation certificate. This is a proof that the company is incorporated. 5. Notice of registered office : within 30 days of incorporation company should file the notice of address of the registered office of the company and the registrar should record it. III) Capital Subscription Stage ; This stage is compulsory for public company with share capital. Steps of Capital Subscription Stage : 1. Board Meeting : A meeting of board of directors is convened to discuss matter like public offer of shares, appointment of brokers, under writer. 2. Preparing prospectus : the directors should get the prospectus prepare. The prospectus must contain details like capital structure of company, particulars of the projects, object of the company etc.

3. Vetting of prospectus : the draft prospectus has to examined by Securities Exchange Board of India ( SEBI) before it is issued to the public. 4. Appointments : the company must make necessary appointments for the issue of shares such as appointment of underwriters, brokers, banker for the issue etc. 5. Filing of prospectus : the prospectus must be file with the registrar before it is issued to the people. 6. Receiving application : the company should make necessary arrangements for receiving application forms and application money. This work is done by bankers. 7. Allotment of shares : the board must make arrangement to allot the shares, if the issue is oversubscribe then the allotment is done in consultation with SEBI and Stock Exchange. 8. Listing of Shares : the listing application should be submitted to the stock exchange along with the listing agreement and listing fee. IV) Commencement of business Stage : a public company cannot start its business until it receives commencement certificate( Trading Certificate ). This certificate is issued by the registrar only if following conditions are fulfilled. y A declaration that a prospectus or statement of lieu of prospectus has been filed with the registrar . y A declaration that company has collected minimum subscription amount mentioned in the prospectus. y A declaration that all the directors have purchase qualification shares and paid the amount. y A statutory declaration stating that all the formalities for commencement of business has been completed ( complied with) Incorporation Certificate Meaning This certificate is issued by the registrar to the joint stock company indicating the birth of the company. Which company requires it : All joint stock company requires this certificate. Purpose : It is the proof that the company is incorporated and private company can start its business after receiving incorporation certificate. Document to obtain this certificate : * Memorandum & Articles * List of Directors * Declaration of Directors * Written consent of Directors * Statutory declaration regarding incorporation Order : This certificate must be obtain before trading certificate. Commencement Certificate This certificate is issued to the public company by the registrar giving signal to start the business. Only public limited companies with share capital needs this certificate. It enables the public company to start its business after receiving commencement certificate.

* * * *

Declaration of filing prospectus. Declaration of receiving minimum subscription. Declaration of payment for qualification share. Statutory Declaration regarding commencement.

This certificate is obtained after incorporation certificate.

Ektaa Utkarsha Classes Documents of joint Stock Company : Memorandum of association (MA) y It is the fundamental document of the company y It has been described as constitution of charter of the company y It clearly states the objectives of the company y It defines scope of its operations and its relationships with outsiders. Contents of Memorandum ( Clauses of Memorandum) 1. Name Clause : * this clause contains full name of the company. According to Indian Companies Act 1956 every company shall state the words limited after its name in case of public company. If it is private company the words private limited must be added after its name. * the name of the company must be approved by the Department of Company Law Administration Government of India. This application for approval of name is forwarded through the registrar of the company. * While selecting the name of the company certain points should be kept in mind y The name of the company should not include works like king, president, prime minister. y It should not be identical to the name of another existing company. y It must not be misleading. * the application must consist several names. 2. Domicile Clause : * this clause is also known as registered office clause. Every company shall state the state in which the registered office of the company is located. * The exact address of the company must be filed with the registrar within 30 days of incorporation. * Any subsequent change in the address of the registered office must be informed to the registrar within 30 days. 3. Object Clause : * this clause defines the objective of the company. A company cannot do anything outside its objects. * The object of the company must be legal and within the provisions of companies act. * The object is further divided into main object for which the company is formed and incidental object which are to be achieved along with main object. 4. Liability Clause : * This clause states the nature of liability of its members. * This clause clearly states the liability of members is limited by shares or limited by Guarantee. * By this clause the member comes to know the extent of liability. 5. Capital Clause : * This clause states the authorized capital of the company. A company cannot collect more than its authorized capital. * This clause states the capital structure of the company, its division, types of shares. 6. Association Clause : * This clause contains declaration from the signatories to the memorandum that they are willing to form a company. * This clause contains name, address, occupation of each subscriber, signature of the subscriber, date and place of signing. * There must be at least 7 signatories in case of public company and at least 2 in case of private company. Articles of Association (AA) The articles of association is the second important document which is required to be filed with the registrar of companies for the purpose of registration. the Articles is a set of rule and regulation regarding internal working of the company It must be signed by the signatories to memorandum. A private company must prepare its own articles. A public company need not prepare its own articles because a public company can adopt Table A of the companies Act. The articles is subordinate document to memorandum of association. The memorandum lays down what is to be done and the articles lays down how it is to be done. Articles of association can be altered (change) by passing a special resolution. Content of Articles of Association : 1. Share capital, right of shareholders, share certificates 2. Call on shares 3. Forfeiture, surrender of shares 4. Transfer and transmission of shares. 5. Increase and reduction of share capital 6. Rights and duties of joint holders of shares. 7. Rules relating to meetings. 8. Voting rights of members. 9. Directors, their remuneration, qualification, retirement.

10. 11. 12. 13. 14. 15. 16.

Powers of board of Directors. Appointment , remuneration and powers of managing directors. Winding up of the company Affixing of common seal of the company Dividends. Audit of the company. Books and documents of the company. Etc.

Table A : It is not compulsory for a public company limited by shares to prepare its own articles. If no articles are registered then Table A will apply to the company. Table A consists of a model ret of 99 articles framed (prepared) under the companies act. Table A consists rules and regulations regarding different aspects of the company management. If the company prepares its own articles and if the articles are silent on certain matters then the regulations of Table A will apply. Contents of Table A (same as Articles of Association) 1. Share capital, right of shareholders, share certificates 2. Call on shares 3. Forfeiture, surrender of shares 4. Transfer and transmission of shares. 5. Increase and reduction of share capital 6. Rights and duties of joint holders of shares. 7. Rules relating to meetings. 8. Voting rights of members. 9. Directors, their remuneration, qualification, retirement. 10. Powers of board of Directors. 11. Appointment , remuneration and powers of managing directors. 12. Winding up of the company 13. Affixing of common seal of the company 14. Dividends. 15. Audit of the company. 16. Books and documents of the company. Etc. Memorandum of Association Meaning: It is the fundamental document which lays down the objectives of the company. It is also known as charter of the company. Area of Relationship : It defines the relationship between the company and outsiders. Status The M.A is the fundamental document of the company. Purpose : The main purpose is to define the limits or scope of the companies activities Ease in alteration : Alteration of memorandum is complicated. Obligation : Every company has to prepare it M.A. Articles of Association It is the subordinate document which provides rules and regulation for the internal working of the company.

It defines the relationship between the company and its shareholder, directors. The A.A is subordinate document to M.A. The main purpose is to provide directions for the internal management of the company. It is convenient to alter Articles of association. A public company limited by shares need not prepare its articles because they can adopt Table A of the companies Act.

Contents : It contains 6 clauses such as name clause, domicile It contains rules and regulations regarding internal clause, object clause, capital clause, association clause, management of the company such as rules regarding liability clause. meetings, shareholders etc.

Prospectus : After receiving the incorporation certificate the public company takes necessary steps to raise capital for the company such a company may send invitation to the public to subscribe (purchase) its shares and debentures. A prospectus is an invitation given by the company to the public to subscribe its shares and debentures. A copy of prospectus must be filed with the registrar before it is issued to the public. Purpose and Importance of Prospectus: 1. To bring to notice of the public that a new company has been formed. 2. To inform the public about the prospectus of the company so that public will purchase the shares. 3. To serve as an advertisement about future prospectus of the company. Contents of prospectus

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Name of the company, registered office address. Aims and objectives of the company Historical background of the company. Capital structure of the company. Right of shareholders. Particulars of directors, managing directors, secretary, their powers, remuneration. Preliminary expenses of the company. Minimum subscription to be collected. Name and address of auditors, bankers, solicitors, date of opening of subscription of share. Date of closing application. Amount to be paid on application.

Statement of lieu of Prospectus : it is not compulsory for public company to issue prospectus. If the promoters are confident of raising the required capital privately from friends and relatives they need not prepare prospectus. However in such case a Statement of Lieu of Prospectus must be filed with the registrar at least 3 days before the allotment of shares. Meaning : it is a document prepared as an alternative to prospectus when public subscription is not required. Purpose : it is required to be filed with the registrar 3 days before allotment. Suitability : this document is suitable for small companies or in case of small projects where the directors can collect capital from private sources. Use to investor : the statement of lieu of prospectus is useful to the prospective investor to make decision about to invest in the company or not. Content of statement of lieu of prospectus (same as prospectus) 1. Name of the company, registered office address. 2. Aims and objectives of the company 3. Historical background of the company. 4. Capital structure of the company. 5. Right of shareholders. 6. Particulars of directors, managing directors, secretary, their powers, remuneration. 7. Preliminary expenses of the company. 8. Minimum subscription to be collected. 9. Name and address of auditors, bankers, solicitors, date of opening of subscription of share. 10. Date of closing application. 11. Amount to be paid on application. Prospectus Meaning : It is a document which invites subscription from the public Purpose : It is required to invite public subscription and for filling with the investor. For whom: The prospectus is meant for public Publicity : The prospectus may be advertised to public Suitability : This document is suitable for large companies specially when large amount of funds are required. Statement of lieu of Prospectus It is a document prepared as an alternative to prospectus when public subscription is not required. It is required to be filed with the registrar within 3 days prior to allotment. This document is meant for private parties. It is not advertised to the public. This document is suitable for small companies or in case of small projects where the director can collect the money from private source.