How to start a Joint Stock Company? (Procedure for Incorporation)

The basic procedure for incorporation

For a company to be incorporated, it must be registered with the “Registrar Of Companies” (ROC). After the company is registered, it receives a “Certificate Of Incorporation” after which the company becomes a legal entity.

Registration of the company

The following documents must be filed for the registration of the company:

The Memorandum of Association
The Articles Of Association
An agreement, if any, which the company proposes to enter into with any individual for appointment as its managing director or whole-time director or manager.
A statutory declaration in Form 1 by an advocate, attorney or pleader entitled to appear before the High Court or a company secretary or Chartered Accountant in whole-time practice in India who is engaged in the formation of the company or by a person who is named as a director or manager or secretary of the company that the requirements of the Companies Act have been complied with in respect of the registration of the company and matters precedent and incidental thereto.

In addition to the above, in case of a public company, the following documents must also be filed:

Written consent of directors in Form 29 to agree to act as directors
The complete address of the registered office of the company in Form 18
Details of the directors, managing director and manager of the company in Form 32.

What is the Memorandum Of Association?

The Memorandum of the company is a compulsory document to be filed by any type of a company. The importance of the memorandum is as follows:

It specifies the basic constitution of the company. It defines the scope and limitations of the company.
Memorandum is considered as a unalterable charter of the company. It is very difficult to alter the memorandum of the company , because it defines certain powers of the company and the company cannot go beyond those powers.
Memorandum becomes a public document as soon as the company gets registered. This is because; it enables shareholders, creditors and those who deal with the company to know what kind of enterprise they are dealing with.
Memorandum forms the outer framework within which the company operates.

What is the articles of association?

The articles of association contains the rules and regulations for the internal administration of the company. It includes bye laws relating to the management of the company.

All the above stated documents have to be sent to the Registrar along with the registration fee, filing fee, stamp duty, as specified. The Registrar, on receipt of the documents, undertakes a scrutiny and if he finds nothing objectionable, issues, under his seal and signature, the “Certificate of Incorporation”

This certificate needs to be collected from the Registrar's office. After obtaining the Certificate of Incorporation the secretary of the company must send the notice of registered address of the company, if it was not sent earlier, within 30 days of registration.

On obtaining the incorporation certificate, a “Private Company” is eligible to transact business. The private company is now incorporated.

A “Public Company”, however cannot transact business unless it obtains a ‘trading certificate'

Public companies, generally wish to transact business by raising capital from the general public. The process of raising capital from the public is carried out in this stage.

For the purpose of raising capital from the public, the company needs to prepare and issue a document known as ‘prospectus’. Public companies that are confident of raising capital on their own need to prepare a document known as ‘statement in lieu of prospectus’.

In this stage, a draft of the prospectus is finalized. Copies of the prospectus are printed. A copy of the prospectus, duly signed by minimum 2 directors and countersigned by the secretary is filed with the ROC.

Thereafter the Prospectus is issued to the public. Advertisement of issue of the prospectus is usually carried out in newspapers. The public need to pay a nominal application fee and subscribe to the capital of the company within a specified period.

There are other steps that also need to be carried out during this phase:

Application to Stock exchange:
An application must be sent to the regional stock exchange for getting the name of the company listed.

Opening of bank account:
The company must open its bank account for receiving of application money.

Appointment of experts:
The company must appoint it’s brokers, solicitors and auditors of the company.

Expert opinion:
An expert’s opinion regarding the bright prospects of the company is usually written in the prospectus. Experts are usually, accountants, values, solicitors etc.

There are certain guidelines given by SEBI (security exchange board of India) regarding listing of the company on Stock exchange and issue of capital. These need to be followed; otherwise SEBI does not let the company be listed.

In response to the invitation given in the form of prospectus, investors decide about taking shares of the company. They fill in the application form attached to the prospectus and send the application as directed with the application money.

The Board of Directors consider the applications received up to the prescribed date. A resolution of allotment of shares needs to be passed. Letters of allotment are sent and after payment of the allotment money by the allot tees, the company proceeds with the formalities relating to obtaining the ‘Trading certificate’ or the ‘Commencement of business certificate’.

These formalities are listed below:

Declaration of minimum subscription:
A declaration stating that minimum shares have been subscribed needs to be sent to the Registrar.

Declaration of directors application money:
A declaration stating that the directors have paid their application and allotment money as required by the qualification shares.

Statutory declaration:
A statutory declaration by one of the directors or company secretary, declaring that the above requirements have been complied with.

If a company does not get permission to be listed on the Stock exchange, then the company is liable to pay back to it’s investors the allotment money and the application money collected from them. After refunding the money, the company needs to file a declaration that all investors have been refunded their money.

The Registrar will examine these documents and if satisfied, will issue under his seal and signature, the ‘Trading certificate’, which is also known as ‘Certificate of commencement of business’. Now the process of incorporation is complete!!

If the company fails to commence business within a year of it’s incorporation, the courts may order for the winding up of the company.

Best of Luck! We hope this guide has been helpful!

Jai Hind!

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