IntroductiontoBusiness–MGT211VU

LESSON6
JOINTSTOCKCOMPANY

JOINTSTOCKCOMPANY
JointStockCompanyisthethirdmajorformofbusinessorganization.Ithasentirely
differentorganizationalstructurefromsoleproprietorshipandpartnership.Therearetwo
advantagesofJointStockCompany.Firstofall,itenjoystheadvantageofincreasedcapital.
Secondly,thecompanyofferstheprotectionoflimitedliabilitytotheinvestors.
ThelawrelatingtoJointStockCompanyhasbeenlaidinCompaniesOrdinance,1984,which
cameintoforceonJanuary1,1985inPakistan.

DEFINITIONS
FollowingaresomeimportantdefinitionofJointStockCompany:
1.SimpleDefinition
“Acompanymaybedefinedasanassociationofpersonsforthepurposeofmakingprofit.”
2.AccordingtoKimball,
“Acorporationbynatureisanartificialperson,createdorauthorizedbyalegalstatuefor
somespecificpurpose.”
3.AccordingoS.E.Thomas,
“Acompanyisanincorporatedassociationofpersonsformedusuallyforthepursuitof
somecommercialpurpose.”


PROCEDUREOFFORMATIONOFAJOINTSTOCKCOMPANYINPAKISTAN
JointStockCompanyisthethirdmajorformofbusinessorganization.Ithasentirely
differentorganizationalstructurefromsoleproprietorshipandpartnership.Therearetwo
advantagesofJointStockCompany.Firstofall,itenjoystheadvantageofincreasedcapital.
Secondary,thecompanyofferstheprotectionoflimitedliabilitytotheinvestors.
ThelawrelatingtoJointStockCompanyhasbeenlaidinCompaniesOrdinance,1984,which
cameintoforceonJanuary1,1985inPakistan.
Followingaretheimportantstagesorstepsfortheformationofajointstockcompany:

FormationofjointStockCompany





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PROMOTIONSTAGE

Thepromotersdothebasicworkforthestartofacommercialoranindustrialbusinesson
corporatebasis.Promotionisthediscoveryofideasandorganizationoffunds,propertyand
skill,torunthebusinessforthepurposeofearningincome.Followingstepsareinvolvedin
thestageofpromotion.

1.IdeaaboutBusiness
Beforestartingthebusiness,promotershavetothinkaboutthenatureandproductionof
company’sbusiness.

2.Investigation
Afterdecidingthenatureofbusiness,promotersgoinpreliminaryinvestigationandmake
outplansasregardtotheavailabilityofcapital,meansoftransportation,labour,electricity,
gas,wateretc.

3.AssemblingvariousFactors
Aftermakinginitialinvestigation,thepromoterstartsaccumulatingvariousfactorsinorder
toassemblethem.Theyarrangelicense,copyrights,employmentofnecessaryemployees
etc.

4.FinancialSources
Thepromotersalsodecidethecapitalsourcesofthecompanyandtheyworkouttheways
throughwhichcapitalcanbegenerated.

5.PreparationofEssentialDocuments
Inadditiontoabovediscussedmatters,thepromotersalsopreparefollowingessential
documentsfortheformationofcompany:
x Memorandumofcompany
x Articlesofcompany
x Prospectusofcompany
Thepromoterscarryingoutthesevariousactivitiesgivethecompanyitsphysicalforminthe
shapeof:
x Givinganametothecompany
x SanctioningofCapitalIssue

INCORPORATIONSTAGE
Thesecondstageforestablishmentofacompanyistogetitincorporated.

1.FillingofDocument
FollowingdocumentsaretobesubmittedbythepromotersintheRegistrar’soffice.
(a)MemorandumofAssociation
Adocumentindicatingname,address,objects,authorizedcapitaletc.ofacompany.



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(b)ArticlesofAssociation
Adocumentcontaininglawsandrulesforinternalcontrolandmanagementofa
company
(c)ListofDirectors
Alistofthenames,occupations,addresses,alongwiththedeclarationofdirectors.
(d)WrittenConsentofDirectors
Awrittenconsentshowingtheirwillingnesstoactatdirectors,tobesenttothe
Registrar
(e)DeclarationofQualifyingShares
Adeclarationcertificateshowingthatthedirectorshavetakenupqualifyingsharesand
havepaidupthemoneyorpayitinnearfuturetotheregistrar.
(f)Prospectus
Promotershavetofileaprospectuswiththeregistrar.
(g)StatutoryDeclaration
AstatutorydeclarationistobesenttotheRegistrarthatalllegalformalitieshavebeen
completed.

2.PaymentofRegistrationFee
Fortheregistrationofcompany,theregistrationfeeisalsopaidtotheRegistrar.For
example
x Applicationanddocumentsfilingfee
x Registrationfee
x StampfeeonMemorandumandArticles

3.CertificateofIncorporation
Iftheregistrarfindsallthedocumentsrightandthinksthatallformalitieshavebeenfulfilled
thenheissuesthecertificateofincorporationtopromoters.

CAPITALSUBSCRIPTIONSTAGE
Aftergettingcertificateofincorporation,thenextstageistomakearrangementforraising
capital.Foranykindofbusiness,thecompanyraisesitscapitalthroughfollowingsources:
x ByIssuingShares
x ByIssuingDebentures
x BySavings

CERTIFICATEOFCOMMENCEMENT
Forthecommencementofbusiness,everypubliccompanyhastoobtainthecertificateof
commencement,whichrequiresthefulfillmentoffollowingconditions:

1.IssueofProspectus
Acompanyhastoissueprospectusforsellingsharesanddebenturestopublic.

2.AllotmentofShares
Thesharesanddebenturesareallottedaccordingtotheprovisionsofmemorandum,when
applicationsarereceivedfromthepublic.

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3.MinimumSubscription
Itisalsocertifiedthattheshareshavebeenallotteduptoanamount,notlessthanthe
minimumsubscription.Afterverifyingtheforegoingdocuments,theregistrarissuesa
certificateofcommencementofbusinesstopubliccompany.


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