Question

"It is said to be an artificial person created by law, having a separate entity with perpetual succession and common seal". What is it? Elaborate up highlighted features.
Explain the legal effect and significance of the 'Certificate of Incorporation' in the life of a Joint stock company. State any two privileges of a private company under the Companies Act, 2013.

Answer 1

Definition of a Company: Section 2 (20) of the Companies Act, 2013 defines a company as "a company incorporated under this Act or under any previous company law." Important previous companies laws are the companies laws passed in 1956. After passing of the Companies Act, 2013, all these acts have been repealed. The definition contained in the Act does not throw any light on the features of a company. A more comprehensive definition of a company has been given by Prof. Haney:

"A "company is an incorporated association which is created by law, having a separate entity with a perpetual succession and a common seal. Two more features division of capital into transferable shares and limited liability of the members may be added to the definition given by Prof. Haney.

Thus, a company may be defined as "an incorporated association which is an artificial -person created by law, having a separate entity, with a perpetual succession, a common seal, capital divided into transferable shares and carrying limited liability."

A joint-stock company (JSC) is a form of company or joint venture involving two or more individuals that own shares of stock in the business. Certificates of ownership ("shares") are issued by the corporation in return for each financial contribution, and the shareholders are free to relocate their ownership interest at any time by selling their shares to others.

Procedure of Formation of a Joint Stock Company :-

1. Promotional Steps:

The person who undertook the task of formation is called promoter or entrepreneur. For Public Limited Company there should be at least seven (7) and for Private Limited company, there should be at least two (2) promoters. These promoters undertook the following tasks:

a) Planning: Here the promoters decide about the objectives, area, type, capital structure of the new business. Based on these factors, the promoters go forward.

b) Feasibility Analysis: Here the promoters undertook the feasibility analysis for the new venture: both from existing and potential viewpoint. Promoters undertook different tools like SWOT (Strength, Weakness, Opportunity and Threat) Analysis; Competitive Analysis, etc. Being assured of the potentiality of the business the promoters go for the further.

c) Naming the Company: The name of the company should be such that is not used by any other existing company; it is not a name of the King or Queen or President. The Public Limited Company should use (pvt.) Limited and the Public Limited Company must use Limited at the end of the company name. The promoter upon deciding the name, they submit the name in black and white for Clearance in the registrar office. The registrar upon verifying the uniqueness of the proposed name gives clearance of using the name.

2. Registration or Incorporation:

To incorporate the new company the promoters needs go through the following steps:

a) Collecting Registration Form and Filling it up: The promoters have to collect the registration form and other papers for a fee from the registrar office. Then they should fill up it by themselves or should take the help of the consultants or advocates.

b) Preparing Documents and Submitting for Registration: The promoters have to submit the filled-up form with fees and the following documents in the registrar office:

• Memorandum of Association

• Articles of Association

• Capital Structure of the proposed Company

c) Obtaining Certificate of Commencement: Here the promoters should make the Prospectus for the company. This prospectus needs to be published in the daily newspaper. To get the Certificate of Commencement, the promoters need to submit the following documents to the registrar :-

• A copy of Prospectus

• Name, address, designation, occupation, etc. of Directors

• Directors’ written Letter of Agreement that they want to work as director of that company.

• Declaration that the directors have fully paid the minimum amount of sponsor share.

• Declaration by the company secretary or other authorized people that the above affairs have maintained all rules and regulation of Company Act 1994.

3. Flotation Stage :-

If the sponsor directors are unable to provide adequate capital to public limited company, can float their share in the capital market (Stock Exchange) to get required capital. By this time, the company can do its other functions.