Legal formalities necessary for the formation of Joint Stock Company

by • 06/01/2013 • GeneralComments (0)644



Q8. Discuss the legal formalities necessary for the formation of Joint Stock Company?



It is a stage when concerned people (promoters) take following steps to form a company.


(i). Idea:

Before starting the business, promoters have to think about the nature and production of company’s business.


(ii). Preliminary Investigation:

After deciding the nature of business, promoters n preliminary investigation and make out plans as regard to the availability of capital, means t transportation, labour, electricity, gas and water etc.


(iii) Assembling Of Factors Of Production

If the promoters find preliminary investigation satisfactory then they try to accumulate different factors of production. For this, they also take help of several specialist persons and enter into agreements with them.


(iv) Estimation of Preliminary Expenses

The promoters also work out the estimated preliminary expenses, which are necessary to start and run the business.


(vi) Financial Sources

The promoters also decide the capital sources of the company. The public company can raise its capital by issuing shares and debentures or by making agreement with underwriters.


(vi) Preparation of Essential Documents

In addition to above discussed matters, the promoters also prepare following essential documents for the formation of company

(a) Memorandum of company

(b) Articles of company

(c) Prospectus of company


(vii) Name of the Company

The name of the company should be such which can indicate its functions and the name is easy to remember. For the name, the permission of the Registrar should be received in advance.


viii) Sanction for Capital issue

For the maximum issue of shares capital or debentures, promoters have to take permission from central government in advance.



For registration or incorporation of a company, promoters have to perform following formalities.


(i) Filling of Documents

Following documents have to be submitted by the promoters in the office of the Registrar of the state in which the company is to be established.


(a) Memorandum Of Association

This document indicates the name of the company along with the address of its registered office and name of state. The most important clause of this document is the objects of the company. It also indicates the Authorized or Registered Capital of the company.


(b) Articles Of Association:

This document contains by-laws for internal control and management but it cannot go out of the objects mentioned in Memorandum of Association.


(c) List Of Directors

Promoters have to send a list of the names of directors, occupation, and address along with their declaration that they are ready to take the qualification shares to the Registrar. But private company is not required to send such list.


(d) Written Consent of Directors

All the directors, whose names are in the list, have to give their consent that they are ready to act as directors of the company. This consent should be sent to the Registrar.


(e) Declaration Of Qualifying Shares:

Directors have to submit a declaration certificate that they have taken up qualifying shares and paid up the money or paying it in near future to the Registrar.


(f) Prospectus

Promoters have to file a prospectus or in lieu of prospectus with the registrar. This is not necessary in the case of private company.


(g) Statutory Declaration

At the end promoters have to send a statutory declaration to the Registrar that all legal formalities have been completed and fulfilled.


(ii) Payment Registration Fee:

For the registration of company, the registration fee is also paid to registrar, which can be divided into following three parts.

Application and documents filling fee.

Registration fee (varies with the amount of authorized capital of the company)

Stamp fee on memorandum and articles.


(iii) Certificate Of Incorporation:

If the registrar finds all the documents right and thinks that all the formalities have been done then he issues the’ certificate of incorporation to promoters. After this, the private company can start its business.



After getting certificate of incorporation, the next stage is to make arrangement for raising capital.

For any kind of business, the company raises its capital through following sources.

(i) By issuing shares

(ii) By issuing debentures

(iii) By savings



For the commencement of business, every public company has to obtain the certificate of commencement, which requires the fulfillment of following conditions.


(i) Issuance OF Prospectus

The Company has to issue prospectus for selling shares and debentures to public.


(ii) Allotment Of Shares

After receiving applications from the people for purchasing shares and debentures, the company allots the shares and debentures according to the provisions of memorandum.


(iii) Minimum Subscription

It is also certified that the shares have been allotted to an amount not less than the minimum subscription.

After verifying the foregoing documents, the registrar issues a certificate of commencement of business to public company. To fulfill the obligation of psalm 63:6, when i?

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