JOINT STOCK COMPANY

Q.1. Define a joint stock company. (Mar. 96, 98; Oct. 99, 2000) Ans. Definition and Meaning: Definition: H.L. Haney: “A Joint Stock Company is a voluntary association of individuals for profit, having its capital divided into transferable shares the ownership of which is the condition of membership”. Section 3(1) of Indian Companies Act, 1956 “Company means a company formed and registered under this Act or an existing company” & Existing company means a company formed and registered under any of the previous company laws”. Meaning: Thus a company is a voluntary association, an incorporated association, an artificial person created by law, having a common seal and perpetual succession Shareholder‟s are the owners of the company but management lies in the hands of Board of Directors. The company conducts its business under the provision of the Indian Companies ct, 1956.

Q.2. Define a Joint Stock Company. What are its characteristics / features? (Mar. 98, Oct. 97, 99, 2000 – Long Answers) Ans. Definition and Meaning: Same as Ans. 1 Characteristics / Features of a Joint Stock Company: The characteristics / features of a Joint Stock Company are: 1. Compulsory Incorporation: A company is a voluntary association of persons formed and incorporated under the existing Corinne law. Only when it gets certificate of incorporation it comes into existence as a body corporate. 2. Artificial person: A company is an artificial person created by law. It is created by legal process and not by natural birth. Even though it has no natural personality, it has legal personality. Therefore it can enter into contracts, sue and can be sued, own property, appoint employees and borrow money like any other natural person. 3. Common Seal: Since a company is an artificial person having no physical features like a natural person, it cannot sign. Hence every company by law must have a common seal on which its name is engraved. The common seal can serve as its signature. The common seal is affixed on all important documents and contracts which is witnessed by signature of two directors and countersigned by secretary where ever required. The common seal is kept under the custody of directors. 4. Perpetual succession: Since the company has a separate existence from its members, directors and employees, their death, insolvency or insanity will not affect its life and existence men may come and men may go but a company remains forever. It can be wound up only under the provisions of the act. 5. Limited liability: Usually the liability of members of a company is limited to the extent of uncalled or unpaid value of shares held by them. Their personal property cannot be seized to meet the company‟s liability beyond the above mentioned liability. 6. Share capital:

The capital required by the company is raised by issues shares. A share is a share in the share capital of the company. The member who holds the shares of a company can transfer its ownership any other person, without the company‟s permission. 7. Separation of ownership and management: In company organisation the ownership and management are separated. The shareholders who are the owners do not take active part in the everyday affairs of the company. Instead, they elect their representatives known as Directors, who with the help of managers and employees manage the company. Thus, there is division of labour and specialisation. 8. Legal Entity: Since the company is created by law it has separate legal existence compared to its members. Therefore the members cannot be personally held responsible for the acts of the company. 9. Large membership: The company is owned by a larger number of members – maximum of 50 in the case of private limited company and unlimited number of members in the case of a public limited company.

6. Limited Liability: Shareholder‟s liability is limited to the face value of the shares held by them. distribution. 4. insolvency or insanity of its members. Large Membership: A joint stock company (especially a public company) has large number of members. Bargaining Power: Compared to other forms of commercial organization a joint stock company has strong bargaining power in buying as well as in selling of goods because of its large scale production. Economies of scale: As the company operates on a large scale it enjoys economies in production. What re the advantages / merit of a Joint Stock Company? (Mar. due to huge capital the company can conduct business on a large scale. management and financing. 98. loans etc. 8. 7. 1 Advantages / Merits of a Joint Stock Company: The advantages / Merits of a Joint Stock Company are: 1. its existence is not affected by death. Being a legal creation it enjoys permanent existence. Their services lead to managerial and administrative efficiency and accuracy. Professional Management: The company appoints experienced. competent and experts to manage the business. If the shares are fully paid up then the member is not liable for any debts of the company. 5. Large membership brings in large amount of funds which can be invested in companies expansion and diversification. Defination and Meaning – Same as Ans. Legal Status: Same as features point 16 The company enjoys a distinct legal entity separate from its members. public deposits. 2002. Continuity and Stability: A company has a long and stable life. Oct. 3. 96. 2.Q.3. . 2003) Ans. The members are liable only to the extent of unpaid value of share. Large Capital: A company can collect huge capital for the business through shares and debentures.

Large capital. Economic Development: Because of Joint Stock Companies there is all round development of trade. 12. This encourages the public and other to invest in shares. Transferability of shares: Shares of a Joint Stock Company (especially public companies) are freely transferable A member who wants to sell his shares can easily do so in the stock market. This leads to higher national income for the country and higher standard of living for the people. are the advantages of a Joint Stock Company. economic development etc. Government Revenue: Joint Stock Companies provides revenue to the government in the form of taxes charged directly and indirectly. Research and Development: Joint Stock Companies undertake R & D continuously thus bringing about new and improved products which benefits people. 13. 11.9. Employment: Joint stock company provides employment to a large number of people directly and indirectly. . 10. government revenue. The society in general gains the benefit of the industrial development. commerce and industry.

7. 3. 5. Lacks Flexibility: The working of a Joint Stock Company is less flexible as compared to other organizations. 2002. No Business secrecy: This form of organization lacks business secrecy because it is compulsory for the company to publish accounts and other records.Q. 2003) Ans. Oct. This may cause friction and disputes amongst the management and workers which may affect the worker‟s morale. What are the disadvantages / demerits of a Joint Stock Company? (Mar. Definition and Meaning: Same as Ans. Difficult Formation: Formation of a Joint Stock Company is an expensive and time consuming process as a number of legal formalities have to be undertaken in order to register the company. It has to follow the numerous provision of the Indian Companies Act. Lack of contact with customers: Due to large scale operations a company finds it difficult to maintain direct contact with its customers. 96. Delay in Decision Making: Due to excessive government control and a democratic set up all decisions are taken in meetings and some decisions require shareholder‟s approval. 2. All this leads to delay in decision making. 98. This makes working difficult. This may lead to poor sales promotion. For every small thing they either have to follow a detailed procedure or obtain sanctions from various authorities. 6. 4. Lack of contact with employees: The top management may not have personal contact with their employees. 1 Disadvantages / Demerits of a Joint Stock Company: The disadvantages / demerits of a Joint Stock Company are: 1. Excessive government regulation: The company is subject to excessive government control.4. Conflicts of Interest: . 8. This results in lack of flexibility.

) in a joint stock company. are the disadvantages of a Joint Stock Company. Exploitation of shareholders: Sometimes the Board of Directors may misappropriate the funds and mislead the shareholders by window dress report. Not suitable for all types of business: This type of an organization is not suitable for business where personalized services are required. no business secrecy. 9.There may arise a conflict of interest amongst the various parties (shareholders. management. . Thus shareholders can be exploited by corrupt directors. The directors may even manipulate the share trading on the stock exchange. This conflicting interest undoubtedly harms the company‟s interest. 10. workers etc. Difficult formation. heavy taxation etc.

Chartered Companies: (a) Incorporated under: Such companies are incorporated under a Royal Character (order) issued by the King or Queen or Head of the State. 1 Types of Companies: The companies can be classified on the basis of the following: (A) On the basis of Incorporation: 1.5. Statutory Companies: (a) Formed under: Such companies are formed under the special act passed by the Parliament or State Legislature. such companies do not require a Memorandum of Association. Life Insurance Corporation. (b) Exclusive rights: Such companies have exclusive rights. 3. Defination and Meaning: Same as Ans. (b) Powers defined: . (b) Powers defined: The powers which can be exercised by such companies are defined by the Acts that constitute them. Bank of England. 2. Discuss the various types of Companies? (Mar. powers and privileges under the royal charter. Thus. State Bank of India.Q. (c) Example: Reserve Bank of India. (c) Example: East India Company. 1956 is called Registered Company. 2000) Ans. Registered Companies: (a) Incorporated under: A company incorporated under the Indian Companies Act.

(c) Can be: A registered company can be a Private Ltd. Company. .The powers exercised by such companies are defined by the Companies Act and Memorandum of Association. Company or a Public Ltd.

Companies Limited by Shares: (a) Members liability limited: In such companies the liability of the members is limited to the extent of the unpaid value on shares. 2. Unlimited Companies: (a) Unlimited liability: In such companies the liability of the members is unlimited. religion. (b) Non – trading Companies: Such companies are formed without a share capital for non – trading (non – profit) purpose to promote culture. (b) Not in India: Due to the high risk involved. such companies are not found in India. (C) On the basis of Membership: 1. In the event of winding up of the company the members need to pay the unpaid value of the shares. (b) Can be: Such companies may be a Public limited company or a Private limited company. 3. charity.(B) On the basis of liability of its members: 1. (c) Depend upon: Such companies depend upon their existence on entrance and subscription fees as they do not have share capital. art. In the event of winding up of the company the private property of the member can be used to pay the debts of the firm. Companies Limited by Guarantee: (a) Member promises to pay: Every member promises or guarantees to pay a fixed sum of money (specified in the memorandum) at the time of liquidation of the company for payment of companies liabilities. Maximum: . sports etc. Private Limited Company: A private limited company is the one which by its articles (a) Minimum. science.

a public limited company is a company which is not a private company. (e) Statutory Meeting: In case of a public company Statutory Meeting is compulsory. (c) Prohibits any invitation: Prohibits any invitation by prospectus or otherwise to the general public to subscribe to any of its shares or debentures. (d) Free transfer of shares: Shares can be freely transferred in a public company.Limits the maximum number of its members to 50. (c) Directors: It must have atleast 3 directors – 1/3rd of the directors are permanent and 2/3rd are subject to retirement by rotation out of which 1/3rd retire every year. Government Company: (a) Means: A government company means any company in which not less than 51% of the paid – up share capital is held by the Central Government and / or by any State Government(s) or partly by the Central Government and partly by one or more State Government. minimum being 2. Maximum: Minimum number of members in a private company is 7 and there is no maximum limit. (D) On the basis of Ownership: 1. (b) Transfer of shares: Places some restriction on the transfer of its shares. (b) Follows provisions of Companies Act: . (d) Word ‘Private Limited’: A private company must used the word „Private Limited‟ after its name 2. Public Limited Company: (a) Not a private company: According to Companies Act. (b) Minimum.

holding company is known as subsidiary company. (c) Examples: Hindustan Machine Tools. Holding Companies: (a) Meaning: It is a company which controls another company by holding a minimum 51% of shares and thereby controlling the composition of the board of the company. . 2. 1956. Thus the above given are the various types of companies. Foreign Companies: (a) Meaning: It is a company which is registered in one country but carries out its operations in India. (E) On the basis of Shareholding: 1. It has to be registered under the Indian Companies Act.Such companies have to follow all provisions of the Indian Companies Act. Oil and Natural Gas Commission etc. 2. Subsidiary Companies: Meaning: A company which another company holds a minimum of 51% of share capital i.e. 1956.

Q. Thus participating preference share get two types of dividend. 2. (2) Payment of dividend. Preference Shares: Meaning: Preference shares are those shares which have preferential rights over the equity shares with regards to: (1) Repayment of capital in the event of liquidation / winding up of the company. one is their normal fixed rate of divided and the other is the extra dividend . Equity Shares: Meaning: Equity shares are those shares which do not have. in case of winding up of the company. (Mar. What is share? What are the various types of shares. Defination – Share Section 2(46) of the Indian Companies Act 1956 defines share as “a share in the share capital of a company and includes stock except when a distinction between stock and shares is expressed and implied”.6. Each such part having the same face value is called share Types of shares: 1. 2002) Ans. Meaning – Share: Owned capital of a company divided into a large number of equal parts or units. Participating preference shareholders extra dividend (additional dividend) after payment of dividend to equity shareholders. There are no types of equity shares. Equity shares are also known as Ordinary shares. Types: (I) On the basis of participation: (a) Participating Preference Shares: The rate of dividend on preference shares is decided and fixed at the time of issue of preference shares. preferential rights with regards to: (a) Payment of dividend (b) Repayment (return) of capital.

.which is paid out of the surplus profit left after payment of dividend on equity shares. They do not have the right to receive an extra dividend. (b) Non – participating Preference Shares: They get only their normal fixed rate of dividend. after the dividend is paid on equity shares.

it gets accumulated on cumulative preference shares. (b) Non – Cumulative Preference Shares: In non – cumulative preference shares. (IV) On the basis of Conversion: (a) Convertible Preference Shares: Preference shares which can be converted into equity shares of the company at a later date are called convertible preference shares The rate and the date of conversion are mentioned at the time of issue of convertible preference shares. They are issued for a specific period and after the completion of the particular period for which they had been issued. If the dividend is not paid in one or more years due to poor performance of the company then such unpaid dividend gets accumulated and is paid. It is to be paid before making any payments of dividend to equity shareholders. the company redeems / returns the capital of the redeemable preference shareholders. the dividend is not paid. if in any year. Non – redeemable preference shares are redeemed only on the winding up of the company. (b) Non – Convertible Preference Shares: . (III) On the basis of Redemption: (a) Redeemable Preference Shares: They are those preference shares which are redeemed after a particular period. When the company performs well. it does not get accumulated. (b) Irredeemable / Non – redeemable Preference Shares: They are those preference shares which are not redeemed during the lifetime of the company.(II) On the basis of right to accumulate dividend: (a) Cumulative Preference Share: If in any year. the dividend is not paid. Such shares are not issued for a particular period.

Preference shares which cannot be converted into equity shares of the company are known as non – convertible preference shares. Infact bonus shares are also equity shares. Bonus Shares: Meaning: A part of the company‟s profit is transferred to reserves. They remain as preference shares only. Such shares are issued to the equity share holders of the company free of charge. . Out of such reserves a company issues bonus shares. 3.

2. Explain the various types of company meetings? (Oct.Conditions for the issue of Bonus Shares: 1. Only private companies can issue deferred shares.7. Deferred Shares / Founder Shares / Management Shares: These shares are issued to the promoters of the company. They rank last of all shares in respect of payment of dividend and repayment of capital. He can purchase the shares from the company itself or from the stock market. Qualification Shares: The articles of a company usually require a director to hold certain number of shares to be eligible as a director. Reserves: Sufficient amount of accumulated reserves. 6. Deferred shares are usually of a lower face value. Twice: There can be an issue of bonus shares only twice in a period of 5 years. The directors must obtain qualification shares within 6 months from his appointment as a director. 4. 5. Such shares are called qualification shares. 4. Shareholder’s approval: Shareholders‟ approval must be obtained in the shareholders‟ meeting by passing a resolution giving approval to the Board‟s decision for the issue of bonus shares. Q. The directors are entrusted with the management of the company it is necessary that they have some financial stake or else they may not take sufficient interest in the efficient management of the company. 2003) OR . Shares fully paid up: Bonus shares can be issued only when the existing shares are fully paid up. If he does not purchase the qualification shares within the prescribed period he ceases to be the director of the company. Approval from: Approval from the Securities and Exchange Board of India (SEBI) must be obtained for the issue of bonus shares. Articles of Association: Provision in the Articles of Association of the company for the bonus issue. 3. 5. 96.

(Mar. (b) Notice of Meetings: Notice of every Board meeting shall be given in writing to every director for the time being in India. in order to discuss and arrive at decisions. Meaning: It is a gathering of 2 or more persons who come together for important discussion and decision on lawful matters. The total strength of directors does not include interested directors. Board of Directors Meeting: (a) Board to meet once in every three moths: For every company. and at his usual address in India. whichever is higher. although it is not obligatory to send agenda. proceedings are invalid unless all directors are present. What is reasonable notice will depend on any particular case. Meeting – Defination: “An official gathering to concerned persons who come together in required number. . required for the functioning of an organisation. a reasonable notice will be given of Board meeting. agenda is enclosed along with the notice. Normally. 2001) Ans. a meeting of its Board of directors shall be held at least once in every three months and at least four meetings every year. If proper notice is not given. (c) Quorum for Meetings: The quorum for a meeting of the Board of Directors of a company shall be one – third of its total strength (any fraction in that one – third being rounded off as one).Short Note on Statutory Meetings. or two directors. Unless the articles of the company provide a definite period of notice. Types of Company Meetings: 1.

at the same day. To allot shares and debentures To sanction loans To forfeit shares. To reinstate membership. Matters to be discussed at Board Meetings: The following some of the matters are discussed at Board Meetings: To borrow money.If the quorum is not present. To purchase or sell property. . time and place and if that is a public holiday. the meeting is adjourned to the next week. To make calls on shares To approve transfer & transmission of shares. then the next succeeding day which is not a public holiday.

at least 21 days in advance. Shareholder Meeting: (a) Statutory Meeting: Meaning: Every public limited company having share capital must convene a general meeting of shareholders. It is the first meeting of the shareholders and it is held once in the life time of a company. etc. (b) Any special matters which require approval of the shareholders is placed before them at this meeting. Details of further prospects of the company. Details of the contracts concluded by the company or changes in the existing contract. not sending a statutory report and not holding statutory meeting). Incorporation of the company. 165. Details of preliminary expenses. The report states the affairs of the company since incorporation. Stating that it is a statutory meeting. within a period of not less than one month and not more than six months from the date at which the company is entitled to commence business. Such meeting is called statutory meeting. Effect of non – compliance of: If default is made in complying with the provision of Sec.e. (i. Objects of the statutory meeting: (a) The statutory meeting is held to inform the shareholders in respect of matters relating to: Allotment of shares Receipts and payments made by the company. Notice of meeting: The directors are required to send to notice to all members of the company. every director .2. Statutory Report: The directors are required to prepare and send a report called Statutory Report to all members at least 21 days in advance of the meeting.

the company may be compulsorily wound up under the orders of the court.000. When Annual General Meetings must be held? The first annual general meeting of the company is held within 18 months of its incorporation. along with the notice. However. Business transacted at the meeting: The business transacted at this meeting is as follows: (a) Routine Business: Declaration of Dividend Appointment of auditors in place of those retiring. Directors Report and Auditor‟s Report. (b) Annual General Meeting: Meaning: Every company shall in each year hold (in addition to any other meetings) a general meeting of its shareholders. Election of Directors in place of those retiring by rotation. as the case may be. The purpose of holding such meeting is to review the progress and prospects of the company and to elect directors and auditors. Subsequent annual general meetings must be held once in every year. .or other officer who is in default shall be punishable with fine. Directors Report and Auditor‟s Report.5. There should not be more than 15 months gap between two annual general meetings. Notice of the meeting: At least 21 days advance notice from the date of the meeting must be given to all the members at their registered address in India. Along with Notice: The members should be supplied with certified copies of Profit and Loss Account and Balance sheet. If statutory meeting is not held and statutory report not filed. the registrar can extend the time upto a period of three months. which may extend to Rs. Adoption of Annual Accounts.

Reduction of share capital. or direct the calling of such meeting. is punishable with fine which may extend to Rs. the Central Govt..2.500 every day till such default continues. To increase authorized capital. on the application of any member of the company can call. .000 and in case the default continues.50. then with a further fine upto Rs. etc. If the meeting is not held as per the provisions of the Companies Act or the directives of the Central Govt.(b) Special Business: To alter the articles of association. Effect of non – compliance: If default is made in holding an annual general meeting in accordance with the provisions of the Companies Act. then every officer who is in default..

Purpose of Meeting: This meeting may be called to discuss such matters as: 1. 4. This meeting is called to discuss important and urgent matters which cannot be postpone till the next annual general meeting. . Increasing the Authorised Capital.(c) Extra Ordinary General Meeting: Meaning: It is general meeting which is held between two annual general meetings. Who can call such meeting: (a) The directors can call such meeting after holding discussion in the Board meeting and as per provisions in the Articles. Changes in Articles of Association. (c) If the board do not call a meeting within 14 days of a valid requisition. Alternation of any clause of Memorandum. Quorum: The quorum at all shareholders meetings. etc. Reduction of Share Capital. then the meeting can be called by the requisitionists themselves within 3 months from the date of submitting their requisition to the company. 3. Notice of the Meeting: At least 21 days notice must be given to all members giving details of the matters to be discussed at the meeting. (including this meeting) must be least five members in case of public company and two members in case of private company. Resolution at the Meeting: The resolutions passed at such a meeting are normally special resolutions and such special resolution have to be filed with the Registrar within 30 days. (d) The Companies Act empowers the Company Law Board to call extra – ordinary general meeting. (b) The directors can call such meeting on the requisition of the members. 2. The members who make a requisition must hold at least 1/10th of the total paid – up share capital or 1/10th of voting power.

The procedure for conducting such class meetings is often prescribed in the articles of the company. The company may be required to call meeting of a particular class of shareholders. Following are the contents of Memorandum of Association: 1. It is divided into different paragraphs called Clauses. The purpose of this document is to inform the outsiders regarding the permitted range of activities of the company.8. Defination and Meaning: Same as Ans. For instance. Equity shareholders preference shareholders etc. 99. This document is prepared by promoters and filed with the registrar for incorporation certificate. It defines the relationship of the company with the outsiders. What is Memorandum of Association? What are its clauses? (Oct. The Name Clauses: . Mar. Memorandum is treated as an unalterable charter or document of a company. the redeemable shares can be converted into irredeemable shares. 03) (Short Note – Oct. lengthy and requires the sanction from the government or. The above given are the various types of meetings of the company. The company must work within the limits of Memorandum of Association.3. treated as practically unalterable charter of the company. Such meeting may be called to incorporate changes in the rights and privileges of the shareholders. Each such clause deals with one aspect of company management. The above given are the various types of meetings of the company. 1 Memorandum of Association: Meaning: Memorandum of Association is the most important document of a company. Memorandum is. Changes in the memorandum are possible but the procedure of bringing such changes in time – consuming. 97) Ans. from the court. It is like the constitution of the company. Any act of company beyond the limits should be called ultra – virus and it will not be binding on the company. Memorandum speaks about the aims and objects of the company. Q. therefore. Class Meeting: The company can have different classes of shareholders.

This clause mentions the name of the company followed by the words „Limited‟ in case of a public company or „Private Limited‟. The Liability Clause: This clauses states that the liability of the members of the company is limited to the face value of shares purchased by them. It should not contain any word which may denote the government support or the patronage of the ruling power. this . It also mentions whether the company is limited by shares or by guarantee. The total capital mentioned in the Memorandum is called „Authorised Capital‟ or „Nominal Capital‟ or „Registered Capital‟. 3. Any alteration in this clause requires the sanction of the Company Law Board. the company has to see that they are not illegal or opposed to public policy or contradictory to the Companies Act or any other law. Any alteration in this clause requires the sanction of the court. This helps to determine domicile and nationality of the company and the jurisdiction of the court under which it comes. The name should not be similar to that of any other existing company. It contains the list of business activities which the company can undertake. The list is usually exhaustive so as to include all those business activities which the company may undertake in future. 5. The Objects Clause: This clause states the objects of the company. The company has to maintain all its statutory books at the registered office of the company. In the case of a company limited by guarantee. The Memorandum must be duly dated and stamped as required under the Indian Stamp Act. 4. The Capital Clause: This clause mentions the total share capital which the company is authorized to raise and its division into different types of shares of fixed denomination. in the case of a private company. While selecting the objects. The word „Company‟ need not be included in the name of the company. 2. The MOA of a company must be printed and suitably divided into paragraphs which should be numbered serially. The Domicile Clause: This clause mentions the name of the State in which the registered office of the company is to be situated. The objects are classified as: (1) the main objects and (2) other objects. All communications and notices are to be addressed to the registered office.

L. (1) Discovery of an idea: . Capital Subscription Stage 4. description and occupation of the witness are also required to be mentioned in this clause. Meaning: It is the first stage in the formation of the company. The name. occupation and address of each subscriber. The person who takes initiative in forming a Joint Stock Company is called „Promoter‟. The Association or Subscription Clause: This clause states that the persons who sign the Memorandum are desirous of forming themselves into a company to achieve the objects mentioned in the Memorandum and that they agree to subscribe for the number of shares of the company. Promotion stage 2. description. Short Note: (a) Promotion & Meaning (Mar.clause states the amount which members undertake to contribute to the assets of the company in the event of its winding up. mentioned against their names in the Memorandum. 6. 1 Formation of a Public Company: Formation of a public company can be divided into 4 stages 1. Promotion Stage: Defination: H. address. 99) Ans. Defination and Meaning: Same as Ans.9. Haney: “Promotion may be defined as the process of organizing and planning the finances of a business enterprise under the corporate form”. It is necessary to mention the name. This is Memorandum of Association and these are its clauses Q. Incorporation stage / Registration stage 3. Trading Certificate Stage / Commencement of Business Stage 1. An unlimited company does not have this clause in the MOA.

(5) Financial Plan: In this stage the amount of funds required. (2) Detailed Investigation: Commercial feasibility of the idea is checked with reference to: (a) Sources of supply of raw material.The work of a promoter starts when an idea strikes him regarding some business which can be profitably undertaken. sources of funds etc. (b) Incorporation Stage: (Oct. This is the promotion stage with its stages. is undertaken. He presents the plan to them and they take the proposition. (4) Assembling: In this stage activities like: (a) Selection of a site for the project (b) Purchase of land and building (c) Entering into technical. When a person understands that there is a possibility of starting or expanding some business the idea is said to have been discovered. 96): The incorporation stage is also called as registration stage. is determined. (b) Availability of funds and manpower (c) Extent of demand The investigation can be undertaken by the promoter themselves or by experts (3) Verification of the idea: In this stage the findings are verified so that there is a double guarantee regarding the validity of the report. The incorporation of a company gives birth to a new company. managerial contracts etc. The promoters must obtain the registration or . (6) Presenting the Proposition: The promoter may ask some more persons to join venture.

The following steps are to be followed: .incorporation certificate from the Registrar of Companies.

address. (d) Written Consent of Directors: Every director must give in his own handwriting – name. The application form must consist of several alternate names. the following documents have to be prepared: (a) Memorandum of Association: It defines or states objectives and activities of the company. 2.1. occupation and age of the directors. It is required in case of public companies only. (c) List of Directors: It contains name. Preparation and Arrangement of Documents: For getting a company incorporated. Government of India through the Registrar of Companies. age and nationality and should put his signature declaring that he has given consent to act as director of the company. (f) Notice of Address: At which the registered office of the company will be located. Name of the Company: The promoters may give any name for the company but it should nto resemble with the name of another existing company. The application for the allotment of name must be forwarded to the Department of Company Law Administration. (g) Declaration of Qualification Shares: If the Articles provide for qualification shares. occupation. The promoters should get the name allotted or sanctioned. address. then the directors have to give a declaration stating that they have agreed to purchase and pay for . 1956 with regard to registration have been complied with. (e) Statutory Declaration: That all the requirements or provisions of the Companies Act. so that if one or the other name is rejected then the promoters can get at least one name allotted to their company. (b) Articles of Association: It is a set of rules and regulations regarding the internal affairs of the company.

qualification shares. 3. Such declaration is required in case of public limited companies only. . Filing of Documents: All the required documents (as mentioned above) must be filed with the Registrar of Companies in order to get the company incorporated.

in such a case a statement in lieu of prospectus must be filed with the Registrar of Companies at least three days prior to allotment of shares. The certificate of Incorporation is numbered. 2. 3. However. The Registrar will check: (a) Whether all documents are in order (b) Whether details in the documents are properly filled in 5. 5. Examination of Documents: The Registrar of Companies will examine the documents. Suitability: This document is suitable for private limited companies where the directors can collect money from private sources such as friends and relatives. Number and type of shares. 97) It is not compulsory for a public company to issue a prospectus. (c) Statement in lieu of prospectus: (Mar. If the promoters are confident of raising the required capital privately from their friends and relatives then they need not issue a prospectus. 4.4. Issue of Certificate of Incorporation: If the Registrar is satisfied with the documents. The issue of certificate is the conclusive evidence of the fact that the company is incorporated and that the requirements of the Companies Act have been complied with. Use: It helps the Registrar to know whether the capital issue is as per the provisions of the companies act. dated and signed by the Registrar of Companies. Meaning: It is a document prepared as an alternative to prospectus when public subscription is not required. he issues a Certificate of Incorporation. This document is mainly used for fulfilling the statutory requirements. Purpose: It is required to be filed with the Registrar within 3 days prior to allotment. Contents of statements in lieu of prospectus: The statement in lieu of prospectus are more or less similar to the prospectus. . 1. It should clearly indicate: The date on which it was delivered to the Registrar for registration.

managing directors etc. . legal advisers etc.Rights of the shareholders. Particulars regarding directors. bankers. Treatment of Reserves Names and addresses of auditors. Full name and address of the registered office Main object of the company and other details Date and signature of the directors. Details of contracts relating to purchase of property. Details about preliminary expenses paid or payable.

Distinguish between 1. (Oct. Ownership and Management: There is no difference in ownership and management 6. 2002) Partnership 1. Liability: Liability of partners is unlimited joint and several 5. It can raise large capital due to large members Members liability limited to the face value of shares There is no difference in ownership and management Less flexible compared to partnership firm Joint stock company is continuous and stable. Meaning: Here 2 or more people come together for doing some business and making profit 2. Flexibility: More flexible. Continuity and Stability: Lacks continuity and stability. Partnership and Joint Stock Company. 96.10. insolvency and insanity of partners 8. Business Secrecy: Can be maintained to a certain extent Joint Stock Company It is voluntary association. less legal formalities involved 3. Capital: It can raise limited capital due to limitation on the number of members and their capacity 4. March 2000. compared to Joint Stock Companies 7. artificial person created by law having a common seal and perpetual succession Formation difficult. too many legal formalities involved. business does not come to an end with death insolvency or insanity of partners No business secrecy .Q. business may come to an end with death. Formation: Relatively easy.

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