Formation of a Joint Stock Company-Meaning and stages

Joint Stock Company includes certain specified legal steps for its formation. In this type of business, the promoter conceives the business idea and takes all initiatives to form a company. 

Meaning of Joint Stock company:

The business which is owned by its investors or shareholders is known as a Joint Stock Company. We can say that the Joint Stock Company is a voluntary association of individuals who contribute money or money’s worth for a common purpose, nobody can enter this business without his/her interest.

 By issuing shares, the company can raise funds from the public. For making large-scale investments, public funds are used for operations like – production of goods, expansion, purchasing assets, etc.

Definition of Joint Stock Company:

“Joint Stock Company is meant as an association of many persons who contribute money or money’s worth to a common stock and employ it for some common purpose.“

-Justice Lindley

What is the Formation of a Joint Stock company?

Formation of a company means the establishment of the business/company which includes promotion, incorporation, subscription of the capital, and after these steps, the final decision is taken by the promoter related to the starting of the business.

The steps of the formation of the company are explained below with the name of various stages. These stages or steps make the concept of formation more clear.

Stages involved in the formation of the company:

There are some important steps and stages which are playing important role in the formation of the business, these are as follows:

A. Promotion:

Promotion means the generation to start the company. This is the process of planning and organizing all the resources which are needed to form a company. The person who performs all these activities related to the promotion of the company is called a promoter.

The promoter can be a group of persons, institutions, or individuals.

There are some functions that are performed by the promoter:

1.Determining the business idea:

The promotion stage starts with the discovery of the idea to set up the business. It includes the different decisions related to the type of business capital requirement, profitability and how many human resources are needed for this business, and so on.

The promoter also analyses all these resources and the degree of risk involved so that it will come to know what is good or not good for the company.

2. Suitability:

Once the idea is formed the next step is to check the feasibility or we can say suitability of the business idea. The promoter starts doing a detailed investigation for the practical shape of the idea of the business.

In this stage, the promoter takes the help of the experts like chartered accountants, engineers, regarding the decisions related to the size of the business, location, capital requirement, and the purchasing of machinery & equipment for the business.

3. Name Approval:

Every company needs registration to gets its name approved. Under this stage, the approval of the name of the company is given by the registrar after the investigation related to the other company’s name. In other words, we can that the name of the company does not match the other company’s name.

4. Memorandum of association:

The promoter decides about the people who will be signing the memorandum. In this stage, the people who sign the MOA with written consent become the first directors of the company.

5. Appointment of professionals:

The promoter appointed the bankers, brokers, and underwriters for the smooth flow of financial dealing and ensuring the availability of the capital.

6. Documentation:

In this stage, legal documents are prepared which have to submit to the registrar at the time of the commencement of the business.

B. Incorporation:

This is the second stage of the formation of a Joint Stock Company. It means the registration of the company which is incorporated under the companies act 1956. 

The steps of incorporation are as follows:

1. Filling of necessary Document:

It includes the submission of the following documents:

1. Memorandum of association
2. Articles of Association
3. Statement of authorized capital
4. A list of directors with their names, addresses, age, and occupation 
5. Address of the registered office of the company.

2. Payment of fee and Registration:

With the filling of the documents, the specified fee for the registration also has to submit or deposited. The registration fee depends on the amount of authorized capital.

On the other hand, the registrar verifies all the documents and checks the deposited fee receipt for finalizing the name of the company.

3. Certificate of Incorporation:

once the name of the company is finalized then the registrar issues a certificate of incorporation. The effect of the certificate of incorporation represents that the company is legally born on the date printed on the certificate. It is now considered as a separate legal entity with perpetual succession from the date of incorporation.

C. Capital Subscription:

 This stage includes the task of obtaining the required capital for the commencement of the company. In the case of a private company, after getting the certificate of incorporation it can start the business but the public company has to perform some activities which are as follows:

 1. Approval from SEBI:

Security Exchange Board of India is a regulatory body that performs the activities regarding the control of the capital market to safeguard the investor’s interest.

In this stage, the Public Ltd. company has to submit all the required information with the SEBI before issuing its securities in the capital. If the company hides some material facts from SEBI then the registration can be canceled.

2. Prospectus and minimum subscription:

It is another important document required for the invitation to the general public for subscribing to the shares of the company. On the other side, the company has to receive an application for a minimum number of shares. The public company cannot make allotment of shares unless a minimum subscription is received.

3. Application to the stock exchange:

The company has to get listed itself on a stock exchange. Firstly, the stock exchange authorities evaluating the soundness of the company if they are satisfied then the company will be listed.

4. Allotment of shares:

When a company is listed under the stock exchange then the company has to submit a return of allotment with the registrar stating the addresses, names, and number of shares allotted to the shareholders.

D. Commencement:

The registrar issue the certificate of Commencement of business after receiving the minimum subscription, along with the application. this is the final stage and in this stage legal documents are prepared after the certification company can run its operation smoothly.

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