How to incorporate a joint stock company?

Companies are incorporated by getting the registration formalities fulfilled with the Registrar of Companies in the concerned state where the registered office is to be situated. A minimum of 7 members in case of a public company and a minimum of 2 members in case of a private company should submit the following important documents to the Registrar of companies.

1. Memorandum of Association

2. Articles of Association

3. Written consent of all the Directors to act as Directors (in case of a Public Company)

4. The agreement with Managing Agents or Secretaries and treasurers, if any.

5. A statutory declaration by an advocate or a chartered Accountant or others concerned that the requirements of registration have been met with.

6. The agreement of Directors to take qualification shares, (in case of a Public Company).

7. A Public Company must prepare a prospectus or a statement in lieu of prospectus to be submitted to Registrar of Companies.

Memorandum of Association

It is an important document which a company must submit at the time of incorporation to the Registrar of Companies. It is a document which lays down the main objectives of the company and the mode of operation in achieving the objectives in detail. It contains the following important clauses.

a. The Name Clause

b. The Situation Clause

c. The Object Clause

d. The Liability Clause

e. Capital Clause and

f. Association Clause

a. Name Clause:

This clause states the name of the company with the last word “Limited” in case of Public Companies and with the last two words “Private Limited” in case of Private Companies.

The name and address of the company should be exhibited outside the business office properly, engraved on the common seal, used in all notices, circulars, bills, letters and other forms of publication.

b. Situation Clause:

This clause is also referred to as the Domicile Clause. It mentions the state in which the registered office is situated. The complete address, however, can be given to the Registrar within 30 days of incorporation or commencement of business whichever is earlier.

c. Object Clause:

This clause contains the objectives of the company. It also defines the area of company’s operations specifying the main objects, secondary objects and other objects of the company. The company cannot engage in any illegal activities or activities not laid down in the Object Clause of the Memorandum.

d. Liability Clause:

This clause contains a statement that the liability of members of a company is limited to the unpaid value of the shares and in case of a company limited by guarantee, a further clause stating the amount or form of guarantee to be undertaken by each member towards the liability arising in the event of winding up of a company.

e. Capital Clause:

The Memorandum should show the details of the amount of share capital of a company, details regarding the division of the capital in the form of different classes of shares and value of each share etc.

This clause fixes the maximum limit of capital which a company is to raise from the public. The maximum limit May, however, be changed if necessary by obtaining necessary permissions from the authorities concerned.

f. Association Clause:

The Clause is also known as Subscription clause. This clause should contain the consent of subscribers in the form of a declaration to form them into a body corporate. Each subscriber is to take at least one share in the company and is required to state the number of shares taken by him along with his signature.

Articles of Association

It is a document containing the bye-laws governing the internal management of day to day affairs of a Joint Stock Company. It is an X-ray of the internal structure of a company.

Articles of Association are a second important document which a company should have along with Memorandum of Association. It is a supplementary document to the Memorandum. The memorandum defines the broad objectives and the scope beyond which the action of the company cannot extend.

Articles of Association define the rights, duties and powers of the directors and the mode of operation of a company’s business. Every company must have an Articles of Association which is to be filed with the Memorandum of Association at the time of Registration.

Registration of Articles is a must for Private Companies, unlimited companies and companies limited by guarantee. For a Public Company, though it is not compulsory they are required to prepare a set of internal rules as contained in Table A of the First Schedule of the Companies Act.