Incorporation Process of Company
Joint Stock Company is the third major form of business organization. It has entirely different organizational structure from sole proprietorship and partnership. There are two advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital. Secondary, the company offers the protection of limited liability to the investors.
The law relating to Joint Stock Company has been laid in Companies Ordinance, 1984, which came into force on January 1, 1985 in Pakistan.
Following are the important stages or steps for the formation of a joint stock company:
Stages of Formation of Joint Stock Company:
a) Promotion Stage:
The promoters do the basic work for the start of a commercial or an industrial business on corporate basis. Promotion is the discovery of ideas and organization of funds, property and skill, to run the business for the purpose of earning income. Following steps are involved in the stage of promotion.
- Idea about Business:
Before starting the business, promoters have to think about the nature of company’s business.
- Investigation:
After deciding the nature of business, promoters go in preliminary investigation and make out plans as regard to the availability of capital, means of transportation, labor, electricity, gas, water etc.
- Assembling various Factors:
After making initial investigation, the promoter starts accumulating various factors in order to assemble them. They arrange license, copyrights, employment of necessary employees etc.
- Financial Sources:
The promoters also decide the capital sources of the company and they work out the ways through which capital can be generated.
- Preparation of Essential Documents:
In addition to above discussed matters, the promoters also prepare following essential documents for the formation of company:
- Memorandum of company
- Articles of company
- Prospectus of company
The promoters carrying out these various activities give the company its physical form in the shape of:
- Giving a name to the company
- Sanctioning of Capital Issue
b) Incorporation Stage:
The second stage for establishment of a company is to get it incorporated.
(1)Filling of Document:
Following documents are to be submitted by the promoters in the Registrar’s office.
-Memorandum of Association:
A document indicating name, address, objects, authorized capital etc. of a company.
-Articles of Association:
A document containing laws and rules for internal control and management of a company.
-List of Directors:
A list of the names, occupations, addresses, along with the declaration of directors.
-Written Consent of Directors:
A written consent showing their willingness to act at directors, to be sent to the Registrar.
-Declaration of Qualifying Shares:
A declaration certificate showing that the directors have taken up qualifying shares and have paid up the money or pay it in near future to the registrar.
-Prospectus:
Promoters have to file a prospectus with the registrar.
-Statutory Declaration:
A statutory declaration is to be sent to the Registrar that all legal formalities have been completed.
(2) Payment of Registration Fee:
For the registration of company, the registration fee is also paid to the Registrar. For example
- Application and documents filing fee
- Registration fee
- Stamp fee on Memorandum and Articles.
- Certificate of Incorporation:
If the registrar finds all the documents right and thinks that all formalities have been fulfilled
,he issues the certificate of incorporation to promoters.
(3) Capital Subscription Stage:
After getting certificate of incorporation, the private company can start its business but for public company, the next stage is to make arrangement for raising capital. For any kind of business, the company raises its capital through following sources:
- By Issuing Shares
- By Issuing Debentures
(4) Certificate of Commencement:
For the commencement of business, every public company has to obtain the certificate of commencement, which requires the fulfillment of following conditions:
- Issue of Prospectus:
A company has to issue prospectus for selling shares and debentures to public.
- Allotment of Shares:
The shares and debentures are allotted according to the provisions of memorandum, when applications are received from the public.
- Minimum Subscription:
It is also certified that the shares have been allotted up to an amount, not less than the minimum subscription. After verifying the foregoing documents, the registrar issues a certificate of commencement of business to public company.