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Lecture no. 08 Formation of JSC

Introduction to Business

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37 views3 pages

Lecture no. 08 Formation of JSC

Introduction to Business

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shafqatrafique290
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Business

Lecture no. 08

Dated:- December 03,2024

Topic:- Formation of a Joint Stock Company

Introduction:-

A joint stock company is a type of business organization that is owned by shareholders who
have limited liability. It is a popular form of business organization due to its ability to raise large
amounts of capital and its limited liability feature. In this section, we will discuss the stages
involved in the formation of a joint stock company.

Definition:-

"A joint stock company is a voluntary association of individuals for profit, having a capital
divided into transferable shares, the ownership of which is the condition of membership." (L.H.
Haney)

Stages of Formation

The formation of a joint stock company involves several stages, which are discussed below:

Stage 1: Promotion:-

1. Idea about Business: The promoters conceptualize an idea for a business. This involves
identifying a business opportunity and developing a concept.

2. Investigation: The promoters conduct a thorough investigation of the business idea. This
involves analyzing the market, technical, financial, and environmental aspects of the business.

3. Assembling various Factors: The promoters assemble various factors of production, such as
land, labor, and capital.

4. Financial Sources: The promoters identify potential financial sources, such as investors,
banks, and financial institutions.

5. Preparation of Essential Documents: The promoters prepare essential documents, such as


the Memorandum of Association, Articles of Association, and prospectus.

Stage 2: Incorporation:-

Shafqat Rafique( Superior College Okara Campus) Dep:-Business administration


Introduction to Business

1. Filing of Documents: The following documents are filed with the Registrar of Companies:

1. Memorandum of Association: This document outlines the company's objectives, share


capital, and other essential details.

2. Articles of Association: This document outlines the company's internal management and
administrative structure.

3. List of Directors: This document lists the names and addresses of the company's directors.

4. Written Consent of Directors: This document contains the written consent of the directors to
act as directors of the company.

5. Declaration of Qualifying Shares: This document declares that the directors have qualified
themselves to hold office by acquiring the required number of shares.

6. Prospectus: This document invites the public to subscribe to the company's shares.

7. Statutory Declaration: This document is a declaration by the promoters that all the
requirements of the Companies Act have been complied with.

2. Payment of Registration Fee: The company pays the registration fee to the Registrar of
Companies.

3. Certificate of Incorporation: The company receives a Certificate of Incorporation from the


Registrar of Companies, which confirms the company's existence as a separate legal entity.

Stage 3: Capital Formation:-

1. Share Capital: The company issues shares to raise capital from investors. The shares may be
issued privately or publicly.

2. Types of Shares: The company may issue different types of shares, such as:

 Equity Shares: These shares represent ownership in the company and give shareholders
the right to vote.
 Preference Shares: These shares have a higher claim on assets and dividends than
equity shares.
 Debentures: These are debt securities issued by the company to raise capital.

3. Public Issue: The company may make a public issue of shares to raise additional capital. This
involves listing the company's shares on a stock exchange.

4. Private Placement: The company may also issue shares through private placement, which
involves issuing shares to a select group of investors.

5. Subscription: The company receives subscriptions from investors, which involves paying for
the shares.

Shafqat Rafique( Superior College Okara Campus) Dep:-Business administration


Introduction to Business

6. Allotment: The company allots shares to investors who have subscribed to the issue.

7. Payment of Share Capital: The company receives payment for the shares from investors.

8. Return of Allotment: The company files a return of allotment with the Registrar of
Companies.

Stage 4: Commencement of Business:-

1. Issue of Prospectus: The company issues a prospectus, which is a document that invites the
public to subscribe to the company's shares.

2. Allotment of Shares: The company allots shares to investors who have subscribed to the
issue.

3. Minimum Subscription: The company ensures that the minimum subscription requirement is
met, which is the minimum amount of capital that must be raised before the company can
commence business.

4. Certificate of Commencement: The company obtains a certificate of commencement of


business from the Registrar of Companies. This confirms that the company has complied with
all the necessary formalities.

5. Business Operations: The company commences its business operations. This involves setting
up the company's infrastructure, hiring employees, and starting production or providing
services.

6. Accounting and Auditing: The company maintains its accounting records and undergoes
auditing as required by law.

Conclusion:-

In conclusion, the formation of a joint stock company involves several stages, including
promotion, incorporation, capital formation, and commencement of business. Each stage is
crucial and requires careful planning and execution. By following these stages, a joint stock
company can be successfully formed and can commence its business operations .

Shafqat Rafique( Superior College Okara Campus) Dep:-Business administration

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