Legal Requirement for formation &Operations of Public Limited Company
L.H. Haney states, a company is voluntary association of many individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.
Types of Company
There are two types of companies in Pakistan
Formation of Company
The formation of company is possible under four stages which are under given below.
· Incorporation
· Raising capital
In four stages, every department clarifies our work and then become the public limited company.
Legal Requirements for Formation of Public Limited Company
There are three legal requirements to formation of Public limited company.
Now we discuss every document with details and every requirement has its own legal existence.
Memorandum of Association(MOA)
Definition (sec.15)
The memorandum of Association is a document which regulates a company’s external activities and constitution and which must be drawn up at the formation of a company.
The charter of every company is Memorandum of association and it makes the relationship between company and general public. In other words we can say the memorandum of association regulates the external affairs of the company due to this the shareholders and creditors can know the range of business activities of the public limited company. The memorandum of association has six clauses. We will discuss every clause with detail.
1. NAME
As a legal person the company must have the name. The name of the company should be different from the name of exiting companies. The name we cannot suggest directly with the name of federal government, provincial government or other government departments.
2. Situation
In Pakistan every company has a register office. The company will show the province the name in which the company office is situated and after 28 days of registration, the company would show the registered office to registrar.
3. Objects
The objects of the company may be expressed in details and clear manner. The rights and powers of the company are stated in it. The nature and types of company activities must be know to shareholders and general public.
4. Liability
The liability of members is limited to the value of shares purchases. The liability of members may be limited by guarantee. The shareholders are bound to pay the amount of guarantee.
5. Capital
The memorandum of a limited company with share capital states the amount of capital. The total capital is divided into number of shares. For example the share capital is Rs.100, 00000 divided into 10, 00000 shares of Rs.10 each.
6. Association
The subscribes to the memorandum express their consent in writing to form an association for any lawful purpose. In case of public company any three or more persons can sign the memorandum of association for registration of company. There is requirement of one or more persons for signing the memorandum of association of a private company. Each member signs the memorandum in the presence of one witness.
Articles of Association(AOA)
Definition (sec.26)
The articles of association are documents that governs the running a company, it sets out voting rights meetings, power of the management.
Explanation
The articles of association are the bye-laws of the company, these are the rules to manage the internal affairs of the company and to achieve objects stated in memorandum .the articles are sub-ordinate to the memorandum of association. The articles cannot go beyond the scope of the companies ordinance 1984.the articles regulates the rights of shareholders of a company.
Contents of Articles of Association
Now we discuss the contents of Articles of Association these are given below,
· Share capital and its division into different classes.
· Rights of various classes to shareholders.
· Procedure for making the call on shares.
· Transfer of shares from seller to the buyer.
· Transmission of shares to legal heirs.
· Alteration of shares capital.
· General meeting of the company.
· Notice and proceedings of general meeting.
· Voting powers of the members.
· Appointment of the directors.
· Power and duties of directors.
· Seal of the company.
· Disqualification of directors.
· Proceeding of directors meeting.
· Filling of vacancies.
· Dividends and reserves.
· Accounts and their audit.
· Notices to be issues by a company.
· Winding up of a company.
· Indemnity to be paid to company officer or agent.
Definition
That prospectus is a document that gives details about a new issue of shares and invites the public to buy shares or debentures in the company.
A prospectus is a notice to general about the formation of a new company. A company tries to attract the people that there is best opportunity for investment I the shares and debentures. The prospectus has the terms and conditions for the purchase of shares and debentures. There is an application form in every copy of prospectus. The prospective investor can apply on this form for purchase of shares or debentures.
Contents of Prospectus
Section-1
· Memorandum
The contents of memorandum of association along with, name and address and occupation of person who have signed it.
· Description of business
The description of business to be undertaken and its prospectus are to be stated. The future possibilities of business growth are also stated.
· Directors remuneration
The rules about the remuneration of the directors for their services to the company as directors, chief executive or otherwise.
· Names of management
The names, addresses and occupation of present or proposed Directors, Chief Executive, and Secretary.
· Application money
The application money payable on each share should be stated. The value of each share is payable in full at the time of application.
· Payment to Promoters
The amount of benefit paid or given within the two proceeding years or intended to be paid or given to any promoters and the consideration for payment.
Section-11
· Auditors Report
A report by the auditors of the company with respect to profit and losses and assets and liabilities of the company is included.
· Interest in Capital
If the shares have been issued or to proceeds of issue of shares or debentures are applied directly or indirectly, (a) in purchase of any business and (b) in the purchase of interest in any business.
· Interest In Subsidiaries
The proceeds of the issue of share or debenture applied in any manner resulting in the acquisition by the company of shares in any other body corporate.
Statement in Lieu of prospectus
A company having a share capital which does not issue a prospectus on or with reference to its formation, there has been delivered to the registrar for registration a statement in lieu of prospectus signed by every person who is names therein as a director or proposed director of the company or by his agent authorized in writing in the prescribed form.
Topic;LEGALREQUIREMENTSFORFORMATION& OPERATION OF COMPANY
UNIVERSITY OF MANAGEMENT AND TECHNOLOGY
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