Documents for setting up A Company

Documents for setting up A Company

All companies must register with the Registrar of Companies and the following
documents must be prepared:

All companies must register with the Registrar of Companies and the following
documents must be prepared:

1.

1.

2.

3.
4.

5.

Memorandum of Association states the external relationship of the

company, e.g., name or title of the company, address, objects
clause/objectives of the business, limited liability statement, so plc is to be
clearly stated, amount of capital and the number and types of shares
(authorized or nominal share capital), statement of association (a minimum
of two signatories to the document sign indicating that they are willing to
establish such a business venture and cover the cost of the shares)
Articles of Association This document sets out the constitution or internal
rules and regulations of the company, e.g., the names of the directors and
their duties, the voting procedures, the rules governing the conduct of
meetings, the rights of shareholders as well as the classes of
shareholders, the auditing rules, the arrangements for the sharing of
profits.
A List of Directors and their written consents to take up shares and serve
the company.
A Statement of Nominal Capital states how much capital and how it is
distributed. The stamp duty must be paid to the relevant government tax
agency.
A Declaration signed under oath that the Companies Act was adhered to.

2.

3.
4.

5.

Memorandum of Association states the external relationship of the

company, e.g., name or title of the company, address, objects
clause/objectives of the business, limited liability statement, so plc is to be
clearly stated, amount of capital and the number and types of shares
(authorized or nominal share capital), statement of association (a minimum
of two signatories to the document sign indicating that they are willing to
establish such a business venture and cover the cost of the shares)
Articles of Association This document sets out the constitution or internal
rules and regulations of the company, e.g., the names of the directors and
their duties, the voting procedures, the rules governing the conduct of
meetings, the rights of shareholders as well as the classes of
shareholders, the auditing rules, the arrangements for the sharing of
profits.
A List of Directors and their written consents to take up shares and serve
the company.
A Statement of Nominal Capital states how much capital and how it is
distributed. The stamp duty must be paid to the relevant government tax
agency.
A Declaration signed under oath that the Companies Act was adhered to.

After these documents are presented the Registrar of Companies will issues a

After these documents are presented the Registrar of Companies will issues a

6.

6.

Certificate of Incorporation (Birth Certificate of the Company) - a legal

document that gives the company the right to go into operation.

Certificate of Incorporation (Birth Certificate of the Company) - a legal

document that gives the company the right to go into operation.

In a Public Limited Company, however, a

In a Public Limited Company, however, a

7.

7.

Prospectus must be advertised to the public giving information about the

proposed business venture, objectives of the company, details of the types,
and amount of shares to be sought and instructions on how to apply for the
shares

Prospectus must be advertised to the public giving information about the

proposed business venture, objectives of the company, details of the types,
and amount of shares to be sought and instructions on how to apply for the
shares

After this is done the Public Limited Company will then be issued with

After this is done the Public Limited Company will then be issued with

8.

8.

Certificate of Trading which allows the company to start business

operations

Certificate of Trading which allows the company to start business

operations

Accounting for the issues of shares:

Examples
1.
Robinson Ltd. makes an issue of 50 000 $1 ordinary shares at par.
General Journal
Dr. ($)
Bank
50 000
Ordinary Share Capital
To record the issue of 50 000 $1 ordinary shares

5.

Cr. ($)
50 000

2.

Robinson Ltd. makes an issue of 50 000 $1 ordinary shares at an issue price

of $1.50 each.
General Journal
Dr. ($)
Cr. ($)
Bank
75 000
Share Premium
25 000
Ordinary Share Capital
50 000
To record the issue of 50 000 $1 ordinary shares at an
issue price of $1.50 each
Note: Share Premium account is described as a Capital Reserve
3.

Robinson Ltd. makes an issue of 20 000 $2 5 per cent preference shares at

par.
General Journal
Dr. ($)
Cr. ($)
Bank
40 000
5% Preference Share Capital
40 000
To record the issue of 20 000 $2 preference shares
4.

Robinson Ltd. makes an issue of 5 000 $5 6 per cent debentures at par.

General Journal
Dr. ($)
Cr. ($)
Bank
25 000
6% Debenture
25 000
To record the issue 5 000 $5 debentures
Note:
1.
Ordinary Share Capital and Preference Share Capital are recorded in the
Financed by Section of the Balance Sheet (both authorised and issued)
2.
Dividends are recorded in the Profit and Loss Appropriation Account
3.
Debentures are recorded in the Long Term Liabilities Section of the
Balance Sheet
4.
Debenture Interest is recorded in the Profit and Loss Account as an
Expense

If Dividends and/or Debenture Interest are owing they are recorded in the
Current Liabilities Section

Exercise
On January 1, 2000 J. Forrester, a sole trader, needed to raise $500 000 to finance the
start up of a factory for electric fans. He decided to incorporate his firm into a limited
liability company. After registering with the Registrar of Companies, he issued a
prospectus for a firm to be called J. Forrester Limited. J. Forrester Limited invited
offers for 300 000 $1 ordinary shares, 50 000 $2 preference shares promising 6 per
cent dividends and 20 000 $5 debentures offering interest at the rate of 8 per cent per
annum. Offers came in for all the shares and debentures available. When this
happens, the issue is described as being fully subscribed.
Required:
a.
Prepare the entries in the Journal of J. Forrester Limited for the start up of
the firm
b.
The opening Balance Sheet of J. Forrester Limited.
J. Forrester Limited
General Journal

J. Forrester Limited
Balance Sheet as at January 1 2000

Companies which choose to raise capital by issuing stocks and bonds to members of
the public are described as being listed and the current price of its shares is quoted
by an organization called the stock market or stock exchange. The stock exchange
is a central market for the buying and selling of shares and bonds. Companies issue
shares and bonds to raise funds for long term use.
Owners of shares and bonds offered to the general public can sell them to other
members of the public through stockbrokers and bond dealers who work on
commission matching sellers and buyers. Indeed a major benefit of owning company
shares lies n the possibility of selling shares at a price above the price originally paid
for them. The difference is called a capital gain.
The company will raise additional funds by issuing new shares, if the issue is limited
to existing shareholders it is called a Rights Issue. Occasionally the company
provides existing ordinary shareholders with additional shares at no cost to them this
is called a Bonus Issue.

The role of the Stock Exchange

Companies which choose to raise capital by issuing stocks and bonds to members of
the public are described as being listed and the current price of its shares is quoted
by an organization called the stock market or stock exchange. The stock exchange
is a central market for the buying and selling of shares and bonds. Companies issue
shares and bonds to raise funds for long term use.
Owners of shares and bonds offered to the general public can sell them to other
members of the public through stockbrokers and bond dealers who work on
commission matching sellers and buyers. Indeed a major benefit of owning company
shares lies n the possibility of selling shares at a price above the price originally paid
for them. The difference is called a capital gain.
The company will raise additional funds by issuing new shares, if the issue is limited
to existing shareholders it is called a Rights Issue. Occasionally the company
provides existing ordinary shareholders with additional shares at no cost to them this
is called a Bonus Issue.

The role of the Stock Exchange

The role of the Stock Exchange

Companies which choose to raise capital by issuing stocks and bonds to members of
the public are described as being listed and the current price of its shares is quoted
by an organization called the stock market or stock exchange. The stock exchange
is a central market for the buying and selling of shares and bonds. Companies issue
shares and bonds to raise funds for long term use.

The role of the Stock Exchange

Companies which choose to raise capital by issuing stocks and bonds to members of
the public are described as being listed and the current price of its shares is quoted
by an organization called the stock market or stock exchange. The stock exchange
is a central market for the buying and selling of shares and bonds. Companies issue
shares and bonds to raise funds for long term use.

Owners of shares and bonds offered to the general public can sell them to other
members of the public through stockbrokers and bond dealers who work on
commission matching sellers and buyers. Indeed a major benefit of owning company
shares lies n the possibility of selling shares at a price above the price originally paid
for them. The difference is called a capital gain.

Owners of shares and bonds offered to the general public can sell them to other
members of the public through stockbrokers and bond dealers who work on
commission matching sellers and buyers. Indeed a major benefit of owning company
shares lies n the possibility of selling shares at a price above the price originally paid
for them. The difference is called a capital gain.

The company will raise additional funds by issuing new shares, if the issue is limited
to existing shareholders it is called a Rights Issue. Occasionally the company
provides existing ordinary shareholders with additional shares at no cost to them this
is called a Bonus Issue.

The company will raise additional funds by issuing new shares, if the issue is limited
to existing shareholders it is called a Rights Issue. Occasionally the company
provides existing ordinary shareholders with additional shares at no cost to them this
is called a Bonus Issue.