The three legal basic documents of a joint stock company are (1) Memorandum of Association, (2) Articles of Association and (3) Prospectus. These are now discussed in brief.
1. Memorandum of Association
Memorandum of association is the basic document of the company. It is known as the charter of the company. It contains the fundamental conditions upon which alone company can be incorporated. It sets out the limits outside which the action of the company' can not go.
The purpose of memorandum of association is to enable shareholders and creditors and all those who deal with it to know its permitted range of enterprise. The memorandum of association, therefore, must be prepared carefully. It must be printed, divided into suitable paragraphs, consecutively numbered and signed by every one of the seven subscriber in case of a public company and two in the case of a private limited company.
The contents of the memorandum of association as required by Sections 16, 17 and 18 of the Companies Ordinance include the following clauses (1) Name clause (2) situation clause (3) object clause (4) liability clause (5) capital clause and (6) subscription clause.
2. Articles of Association
The articles of association is the second step in the incorporation of a company. It is the document which contains the rules and regulations for the internal management of the company. The articles of association embody the power of directors and other officers of the company, the right of voting of the shareholders, the procedure of holding meeting, the manner of transferring the shares; the procedure of issuing the shares debenture, the payment of dividends, maintenance of accounts, alteration of capital, winding up etc. etc.
The articles of association is subordinate to the It cannot include any power which is prohibited or excluded by the Memorandum and the Companies Ordinance. According to Section 26 of the Companies Ordinance, a company limited by shares can choose to adopt table 'A' in the First Schedule which contains model rules and regulations. However, for a company limited by guarantee, or unlimited company, the articles are to be registered with the memorandum.
The articles of association shall be printed, divided into paragraphs, numbered consecutively signed by each subscriber and dated.
The articles of association subject to the provisions of Ordinance can be altered or added by special resolution.
Prospectus is a valuable document issued by the company for raising of the Capital.
Prospectus has been defined as "any document described or issued as prospectus and includes any notice, circular, advertisement or other communication, Inviting offers from the public for the subscription or purchase of any shares."
The object of prospectus is to arouse the interest of the investors in the proposed company and to induce them to invest in its shares and bonds etc.
The prospectus gives the details of the amount issued, the rights attached to the shares, the property purchased, information about directors, auditors, bankers etc.
If the company is already in operation and the offer for sate of shares is made, then the report of the auditors regarding profit and losses, assets and liabilities, the rate of dividend declared in the previous years etc is to be given.
In case, a company is able to raise funds privately and the appeal to public to invest their savings in the company is unnecessary, then the company is required to file A Statement in Lieu of Prospectus with the Registrar of the Area.
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