Main Documents of Joint Stock Company

Subject: Business Studies

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This note contains the main document of the joint stock company. Main document of joint stock company are Memorandum of Association, Article of Association and Prospectus.

Main Documents of Joint Stock Company

The main documents for incorporation of a joint-stock company are as follows:

  • Memorandum of Association
  • Article of Association
  • Prospectus

 

Memorandum of Association

Source: www.slideshare.net
Source: www.slideshare.net

Memorandum of Association is the constitution of the joint stock company. It directs or instructs joint stock company. The joint stock company runs in accordance with the memorandum of association. Activities of the joint stock company are directed by the Memorandum of Association. Memorandum of Association is regarded as a blueprint as it is needed for the incorporation of the joint stock company. Memorandum of association is submitted to Company Registrar Office. Basic information and provision of the company are clearly mentioned in the memorandum of association. It defines scopes, objectives, functions of the joint stock company.

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Main Clauses/ Contents of Memorandum of Association

  1. Name clause:
    In the clause, a name of the company is clearly stated. Generally, the unique, attractive, short name is selected by promoters to attract the attention of the general public. Name of the company must be registerable. The name of the company should not match with some other registered company.

  2. Address clause:
    Address of the company is clearly stated in the address clause. Basically, an address of the head office must be mentioned in the address clause. The address must be same as mentioned at the time of registration of the company.

  3. Objective clause:
    Plans, policies, and objectives are formulated by the top level management. Major objectives/goals are clearly stated in this clause. The pointwise arrangement should be made if there are many objectives and goals. The objective of the company must be stated in this clause properly.

  4. Functional clause:
    The organization has to perform different functions and activities. Those functions and activities are performed by different level staffs. Functions and activities are performed to achieve pre-determined goals. Functions and activities to be performed by the organization are clearly mentioned in this clause.

  5. Capital clause:
    There must be an appropriate capital structure to run the activities of an organization. Authorized capital, issued capital, debt capital, equity capital, working capital, fixed capital etc. are mentioned in this clause.

  6. Liability clause:
    Provision of liability is clearly mentioned in this clause. Basically, the joint stock company has a provision of limited liability which is clearly stated in this clause.

  7. Restriction on transfer of share clause:
    In public company, shares are fully transferable whereas in private company shares are not transferable to outsiders. In this clause, the provision of transfer of share is clearly mentioned.

 

Article of Association

Source: slideplayer.com
Source: slideplayer.com

Different activities are performed in a joint stock company. Harmony and coordination are needed for the effective operation of business activities. The joint stock company is rigidly observed by the government so it must follow rules and regulations of a company. An article of association contains rules and regulations of a company. It regulates the management of the company. The article of association must be submitted to Company Registrar Office for the incorporation of business organization. The article is the outcome of mutual consent of the promotion. When promoters sign in this article then it is submitted to the concerned department of Nepal Government for legal validity.

Contents of Article of Association

  1. Director related particulars:
    Number of directors to be elected in the company must be mentioned in this particular. Remuneration, appointment, facility of directors are clearly mentioned in this content. Here, the right of a number of directors, a role of directors and promoters, delegation of authority are also mentioned.

  2. Meeting related particulars:
    The annual general meeting of the joint stock company is a very important meeting. In this particular quorum of a meeting is clearly stated and provision of conduction of the meeting is also mentioned. Basically, in the public company before the 21 days of conduction of meeting, shareholders are informed about the meeting. Agenda is also attached while informing shareholders about the meeting. Majority shareholders are needed to pass the agenda of the meeting.

  3. Shares related particulars:
    Nature of share, transfer of share, an issue of share etc. are clearly depicted in the share related particulars. The way of transferring share related particulars and the way of transferring share is also stated.

  4. Other particulars:
    In this procedure of appointment of an auditor, use, and formation of the common seal, the way of taking loan are clearly stated.

Prospectus

A prospectus is an invitation to the general public for purchasing the share of the public company. There is no any legal obligation to publish a prospectus in a private company. The prospectus provides a summary of past history. It helps to convert potential shareholders into existing shareholders. In a competitive market, a business must be able to draw the attention of the public.

Prospectus plays the role of advertisement. It plays a vital role to promote the activities of the company. General people/ outsiders observe the prospectus then decide to purchase a share.

In conclusion, a document which is issued to public people for informing about the company is called prospectus.

According to the Company Act, 2053, the prospectus must contain the following matters:

  1. The main objectives of the company and other important matters mentioned in the Memorandum of Association and Article of Association.
  2. A minimum number of share required to be subscribed to become the director and their salaries and allowances.
  3. Description of cash receipt as the remuneration of share or reward by the promoters and directors.
  4. The provision relating to bonus shares.
  5. Provision if any regarding reservation of shares for any shareholder, employee or other persons.
  6. Name and address of the directors and number of the shares subscribed.
  7. A number of shares to be issued to the general public on par or premium.
  8. A minimum number of shares to be subscribed advance payment along with the application.
  9. Brokerage on shares and debentures.
  10. Estimated expenditure for the company and estimated income at least for coming 3 years.
  11. The net worth of the company.
  12. Name and address of the auditors and the audit report, if any.
  13. Date of opening and closing of the subscription list.
  14. The balance sheet and profit and loss account of the company and time and place for inspecting the same.
  15. Details of the underwriting of shares and commission of their earning.
  16. Other necessary particulars.

 

 

 

 

 

 

References:

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal.Business Studies.Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al.Business Studies.Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.

 

 

Things to remember
  1.  Memorandum of Association is the constitution of Joint stock company. 
  2.  Article of association must be submitted to Company Registrar Office for the incorporation of business organization.
  3. A prospectus is an invitation is a general public for purchasing share of the public company.
  4. Prospectus provides a summary of past history. 
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
Questions and Answers

The main document of joint stock company:

  • Memorandum of Association
    Memorandum of Association is the constitution of Joint stock company. It describes the objectives and right of the company, and also regulates the relationships of the company with other parties.

  • Article of Association
    Article of Association is another important document of the company. It defines the mode and manner in which the company's business is to be carried out to achieve its objectives as stated in the Memorandum of Association.. The article is the outcome of mutual consent of the promotion.

  • Prospectus
    A prospectus is an invitation is a general public for purchasing share of the public company. There is no any legal obligation to publish a prospectus in a private company. Prospectus provides a summary of past history. The prospectus also highlight share transfers and share forfeiture of the company to protect the right of prospective shareholders.

 The main document of joint stock company:

  • Memorandum of Association
    Memorandum of Association is the constitution of Joint stock company. It describes the objectives an rights of the company, and also regulates the relationships of the company with other parties.  Memorandum of association is submitted to Company Registrar Office. Basic information and provision of the company are clearly mentioned in the memorandum of association. It defines scopes, objectives, functions of the joint stock company.

  • Article of Association
    Article of Association is another important document of company. It defines the mode and manner in which the company's business is to be carried out to achieve its objectives as stated in the Memorandum of Association. The article is the outcome of mutual consent of the promotion.  The article is the outcome of mutual consent of the promotion. When promoters sign in this article then it is submitted to the concerned department of Nepal Government for legal validity.

  • Prospectus
    A prospectus is an invitation is a general public for purchasing share of the public company. There is no any legal obligation to publish a prospectus in a private company. Prospectus provides a summary of past history. The prospectus also highlights share transfers and share forfeiture of the company to protect the right of prospective shareholders. 

    Prospectus plays the role of advertisement. It plays a vital role to promote the activities of the company. General people/ outsiders observe the prospectus then decide to purchase a share.

    In conclusion, a document which is issued to public people for informing about the company is called prospectus.

Main clauses/ contents of Memorandum of Association

  • Name clause:
    This is the first clause of the Memorandum Association. This clause includes the distinct name of the company.  Generally, the unique, attractive, short and sweet name is selected by promoters to attract the attention of general public. Name of the company must be registerable. The name of the company should not match with some other company.

  • Adress clause:
    Address of the company is clearly stated in the address clause. Basically, an address of the head office must be mentioned in the address clause. The address must be same as was mentioned at the time of registration of the company.

  • Objective clause:
    It is the most important clause of the Memorandum of Association. This scope gives the scope and direction to the company for its activities. It gives protection to shareholders  by ensuring that the fund raised for specified businesses are not going to bet risked  to another. : Plans, policies, and objectives are formulated by the top level management. Major objectives/goals are clearly stated in this clause.

  • Liability clause:
    This clause mentions the liability of the shareholders. In a limited liability, however, liability of the directors, or manager may be unlimited if so,  provided by memorandum. Basically, the joint stock company has a provision of limited liability which is clearly stated in this clause.

  • Capital clause:
    This clause mentions the authorized capital of the company. There must be appropriate capital structure to run the activities of an organization. Authorized capital, issued capital, debt capital, equity capital, working capital, fixed capital etc. are mentioned in this clause.

  • Restriction on transfer of share clause: In public company shares are fully transferablewhere as in private company shares are not transferable to outsiders. In this clause, provision of transfer of share is clearly mentioned.

Articles of Application is another important document of a company. This document should be attached with the application for registration. Harmony and coordination are needed for the effective operation of business activities. The joint stock company is rigidly observed by the government so it must follow rules and regulations of a company. Article of association contains rules and regulations of a company. It regulates the management of the company. It also mentions the appointment of the board of directors, procedure of holding meetings, transfer of shares, rules regarding loans, rules regarding declaration of dividend etc. Article of association must be submitted to Company Registrar Office for the incorporation of business organization. The article is the outcome of mutual consent of the promotion. When promoters sign in this article then it is submitted to the concerned department of Nepal Government for legal validity. 

Contents of Article of Association:

  1. Director related particulars:
    Number of directors to be elected in the company must be mentioned in this particular. Remuneration, appointment, facility of directors are clearly mentioned in this content. Here, the right of a number of directors, a role of directors and promoters, delegation of authority are also mentioned.

  2. Meeting related particulars:
    Annual general meeting of the joint stock company is very important meeting. In this particular quorum of a meeting is clearly stated and provision of conduction of meeting is also mentioned. Basically, in the public company before the 21 days of conduction of meeting, shareholders are informed about the meeting. Agenda is also attached while informing shareholders about the meeting. Majority shareholders are needed to pass the agenda of the meeting.

  3. Shares related particularly:
    Nature of share, transfer of share, an issue of share etc. are clearly depicted in the share related particulars. The way of transferring share related particulars. The way of transferring share is also stated.

  4. Other particulars:
    In this procedure of appointment of an audition, use and formation of the common seal, way at taking loan are clearly stated.

 

A prospectus is an invitation is a general public for purchasing share of the public company. There is no any legal obligation to publish a prospectus in a private company. Prospectus provides a summary of past history. It helps to convert potential shareholders into existing shareholders. It is prepared and circulated basically to inform the public about the company and make people invest money in the company.

Prospectus plays the role of advertisement. It plays a vital role to promote the activities of the company. General people/ outsiders observe the prospectus then decide to purchase a share. The prospectus must be signed and dated by the promoters of the company.

According to the Company Act, 2053, the prospectus must contain the following matters:

  1. The main objectives of the company and other important matters mentioned in the Memorandum of Association and Article of Association.
  2. A minimum number of share required to be subscribed to become the director and their salaries and allowances.
  3. Description of cash receipt as the remuneration of share or reward by the promoters and directors.
  4. The provision relating to bonus shares.
  5. Provision if any regarding reservation of shares for any shareholder, employee or other persons.
  6. Name and address of the directors and number of the shares subscribed.
  7. A number of shares to be issued to the general public on par or premium.
  8. A minimum number of shares to be subscribed advance payment along with the application.
  9. Brokerage on shares and debentures.
  10. Estimated expenditure for the company and estimated income at least for coming 3 years.
  11. The net worth of the company.
  12. Name and address of the auditors and the audit report, if any.
  13. Date of opening and closing of the subscription list.
  14. The balance sheet and profit and loss account of the company and time and place for inspecting the same.
  15. Details of the underwriting of shares and commission of their earning.
  16. Other necessary particulars.

 

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