Question No 16: Describe the Procedure of Formation of JSC. And also drive the specimen o f Incorporation.

Answer: Procedure of Formation of Joint Stock Company: Introduction: JSC is a form of a business which is usually involved in large scale business. Such businesses play vital rule in the development of the country. Moreover, establishment of such organizations requires a very long procedure and compulsions. However, steps involved in formation of a JSC are given below:

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Steps for the Formation of JSC: Followings are main steps for the formation of a JSC:

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Promotion Stage Incorporation Stage Capital Raising Stage Commencement Stage

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<>Idea Generation <>Selection of Name <>Contact with Underwriters <>Min. Subscription <>Analysis <>License <>Contact with Bankers <>Payment of Shares <> Seeking Opinion <>Submission of Documents <>Issue of Prospectus <>Statutory Declaration <> Planning for Resources <>payment of Fees <>Issue of Shares <> Commencement Certificate <>Preliminary Expenses <> Verification <>Issue of Debentures <> Submission of Prospectus <> Preparation of <> Certificate of Incorporation Documents <> Address of Company

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A) PROMOTION STAGE: It is the first stage of formation of JSC. Definition: Promotion starts with the conception of idea for the business to be involved and continue down to the point at which the business fully ready to begin operation as a going concern. Those people who take initiative in the formation of JSC are called promoters. Note: Promotion is the discovery of ideas and or organization of funds, property and shill, to run the business for the purpose of earning income, There must be minimum (7) promoters in case of public and (2) promoters in case of private company. Steps involved in promotion stage: Following important steps are involved in promotion stage. 1. Idea Generation:

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It all starts from an idea, the promoters discover the idea of the company and hopes that there is possibility of the existence of the idea they have thought of. The idea is always based on the experience of the expert. 2. Analysis / Investigation: After the idea generation the promoters take an deep analysis regarding the following things: Cost of Land & Building. Estimation of labour. Estimation of raw material. Sources of financial fulfillment. Cost Vs Benefits analysis (Feasibility Report). Note: The success and growth of the business depends upon the correct analysis. And then these results are verified by experts. 3. Seeking Opinion: The view of the consultants and experts must be taken while preparing the final draft of the idea. The success of the business can be linked with the exact calculations of programs. 4. Planning for Resources: The promoters can assemble the business resources and factors of production, the promoters arrange sources of capital, raw material, and other factors of production. They make contact with the suppliers for raw material and machinery and they also arrange for license, copyrights, employment of necessary employees etc..

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6. Preparation of Documents: Followings are the various legal documents prepared by the promoters: Memorandum of Association (MOA) Articles of Association (AOA) Other Documents: Documents related to Registered Office. List of Directors. Written consent of directors. Authorized / Nominal / Registered Capital. Qualification of Shares. Declaration.

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5. Preliminary Expenses: The initial expenses of the company are paid by the promoters. The preparation of: MOA. (A document indicating name, address, objects, authorized capital etc.) AOA. (A document containing laws and rules for internal control and management of a company.) Prospectus. (Promoters also have to file a prospectus with the registrar, used to invite the public.) Registration Fees etc are called initial or preliminary expenses.

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B) INCORPORATION OR REGISTRATION STAGE: It is the second stage of formation of JSC. Definition: To register the company with the registrar and it is done promoters under the Companies Ordinance 1984 is called Incorporation/ Registration. However, this stage includes the following steps: 1. Selection of Name: The name of the JSC is proposed by the promoters. The name should be different from other existing companies. The name must not state the patronage (aid) of any head of the state. 2. License: The application for the license is submitted to the Federal Government before registration of the company. The license is usually required to get started the company. Submission of Documents: The various documents prepared by the promoters of JSC are filed to the registrar for the verification and registration of JSC. Payments of Fees: Both the public and private limited companies will pay the amount of fees to registrar as prescribed depending upon the scale of the business and in particular the amount of share capital. The amount are transferred to the Govt Treasury.

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Verification: The registrar of companies verifies the all the documents to ensure the legality and viability to insure proper registration. Certificate of Incorporation: After verification of legal documents the registrar issues the certificate of incorporation or registration which means that now the company is registered and hence become an artificial and legal entity. Address of the company: After incorporation the management must inform the registrar in writing about the registered office of the JSC within 28 days. NOTE: after getting certificate of incorporation the private limited companies can start its activities but not public limited companies.

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C. CAPITAL RAISING STAGE: After receiving the certificate of incorporation, the next step is to make arrangement for raising capital. It is the third stage of formation of JSC. Followings are the steps taken in order to raise the share capital of JSC: 1. Contact with underwriters: The promoters make contact with underwriters for the sale of the companys shares. The underwriters provide guarantee for the sale of companys shares within the specified time period as agreed. NOTE: Usually the underwriters are the Bankers.

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Contact with Bankers: The promoters make contact with bankers for the sale of the shares of the company. Issue of Prospectus: The public limited company issues prospectus for inviting investors to purchase shares and become shareholders of the company. Prospectus is an advertisement or an invitation to general public for purchasing the shares.

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D. COMMENCEMENT STAGE: It is the fourth and last stage of formation of JSC. Following steps are taken in this stage: 1. Minimum Subscription (Shares): A declaration regarding to the allotment of shares is fulfilled by the public limited company. 2. Payment of Shares: The directors have to obtain the qualifying share and to have made the payment against them. NOTE: Minimum limit of qualifying shares is one.

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Issue of Debentures: The public limited company also collects capital by issuance of debentures which are the debt proof, at the agreed price.

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Issue of Shares: On the receipt of shares applications the company issues the shares to the applicants at the agreed price.

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Submission of Prospectus: Now the company files the prospectus to the registrar of the companies. Statutory Declaration: The declaration relevant to the company condition under the companies Ordinance1984 is made by the Secretary of company. The secretary or a chartered accountant can give declaration that all the provisions of the Companies Ordinance with regard to registration have been fulfilled.

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Certificate of Commencement of the Business: After checking all the documents the registrar issues a certificate of commencement of the business to the public limited company. From the date of issuance of this a company can start the business a public limited company can starts its business activities.

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CONCLUSION: It is concluded that Joint Stock Company formed passing through promotion stage, incorporation stage, capital raising stage and commencement stage. After completing the procedure a Public limited company can operate its activities, but a private limited company cab start its business after getting certificate of incorporation.

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