Formation of A Joint Stock Company

The formation of a Joint Stock Company means starting a business or company, which includes promotion, incorporation, and capital subscription. After these steps, the promoter makes the final decision on the business’s start-up. In this article, we will explain the formation of a Joint Stock Company.

Process of Formation of A Joint Stock Company

The Joint Stock Company has many advantages and disadvantages that you should know. The following are some essential steps and stages that play a role in the formation of a Joint Stock Company:

1.Promotion

The process of forming a company is referred to as “promotion.” This is the process of planning and organizing all of the resources needed to start a business. A promoter is someone who performs all activities related to the company’s promotion.

A promoter can be a group of people, an institution, or an individual.

The promoter performs some functions:

–        Determining business idea:

The promotion stage begins with the discovery of the business idea. Then, it includes various decisions regarding the type of business capital required, profitability, and how many human resources are required for the business, among other things. To assess what is good or bad for the company, the promoter analyzes all of these resources and the level of risk involved.

–        Suitability:

Once the idea has been developed, the next step is to assess the feasibility, or suitability, of the business idea. Then, the promoter begins a thorough investigation into the practical form of the business idea.

At this stage, the promoter seeks experts such as chartered accountants and engineers on issues such as the size of the business, location, capital requirements, and the purchase of machinery and equipment for the business.

–        Name Approval:

Every company must register for its name to be approved. The registrar grants approval of the company’s name at this stage, following an investigation into another company’s name. In other words, we can see that the company’s name does not match the other company’s name.

–        Memorandum of association:

The promoter chooses the individuals who will sign the memorandum. At this point, the people who sign the MOA with written consent become the company’s first directors.

–        Appointment of professionals:

The promoter appointed the bankers, brokers, and underwriters to ensure the smooth flow of financial transactions and the availability of capital.

–        Documentation:

Legal documents are prepared at this stage and must be submitted to the registrar when the business begins.

2. Incorporation

This is the second step in forming a Joint Stock Company. It refers to the incorporation of a business under the Companies Act of 1956.

Following are the steps of incorporation for the formation of a Joint Stock Company:

Filling of necessary Documents:

It includes the submission of the following documents:

  1. Memorandum of association
  2. Articles of Association
  3. Statement of authorized capital
  4. A list of directors with their names, addresses, age, and occupation 
  5. Address of the registered office of the company.

-Payment fee and Registration:

The specified registration fee must also be submitted or deposited along with the completion of the documents. The authorized capital amount determines the registration fee.

On the other hand, the registrar verifies all documents and checks the fee receipt before finalizing the company’s name.

-Certificate of Incorporation:

When the company’s name is finalized, the registrar issues a certificate of incorporation. The certificate of incorporation’s effect represents that the company was legally born on the date printed on the certificate. It is now treated as a distinct legal entity with perpetual succession from the date of incorporation.

3. Capital Subscription:

This stage includes the task of obtaining the necessary capital for the company’s start-up. A private company can begin operations shortly after getting its certificate of incorporation, whereas a public company must perform the following activities:

– Approval from Security Exchange

The Security Exchange Board is a regulatory body that performs capital market control activities to protect investors’ interests.

Before issuing securities in the capital, the Public Ltd. company must first submit all required information to the security exchange. If the company conceals material facts from security exchange, the registration may be canceled

Prospectus and minimum subscription:

It is yet another essential document required to invite the general public to subscribe to the company’s shares. The company, on the other hand, must receive an application for a minimum number of shares. This is because a public company cannot issue shares unless a minimum subscription is received.

-Application to the stock exchange:

The company must be listed on a stock exchange. First, the stock exchange authorities evaluate the company’s soundness; if satisfied, the company is listed.

-Allotment of shares:

When a company is listed on the stock exchange, it must file a return of allotment with the registrar, including the addresses, names, and the number of shares allotted to the shareholders.

4. Commencement:

After receiving the minimum subscription and the application, the registrar issues the Certificate of Commencement of Business. This is the final stage, and legal documents are prepared after the certification company has run its operations smoothly.

Conclusion

The different types of joint-stock company formation have a lot of steps till the commencement of business, and it differs from country to country.