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REGISTRATION OF SOLE PROPRIETORSHIP, FIRM & COMPANy FORM

OFG BUSINESSES
LEGAL FORMS OF BUSINESS OWNERSHIP
In the private sector, there are three main legal forms of business ownership.
(1) The Sole Proprietorship (2) Partnership and (3) The Company. The forms
of businesses and their registration procedures are enumerated in the
following paras.
1. SOLE PROPRIETORSHIP
Introduction. The individual proprietorship or sole proprietorship is the oldest
form of business organization. It is as old as the civilization itself. Historically,
it appears that business started first with this form of organization. It is the
simplest and natural type of organization.
Sole proprietorship is also called individual proprietorship, or one man
business. Sole proprietorship is a form of business organization in which an
individual introduces his own capital, uses his own skill and intelligence in the
management of its affairs, assumes all the risks of business and is solely
responsible for the results of its operations. He, thus, owns all and risks all.
The business is exclusively in the hands of an individual. Most of the bakery,
hardware stores, service stations, barbers shop, doctor's clinic, service
stations, beauty parlours, etc. are examples of sole proprietorship.
Definitions of sole proprietorship
Some of the important definitions of sole proprietorship are as follows:(1) Paterson and Plowman. "A sole proprietorship is a business unit whose
ownership and management are vested in one person. The individual
assumes all risk of loss or failure of-the enterprise and receives all profits from
its successful operation."
(2) James Stephenson. "A sole trader is a person who carries on business
exclusively by and for himself. He is not only the owner of the capital of the
undertaking but is usually the organizer and manager and takes all the profits
or responsibilities for losses.
Characteristics of sole proprietorship The main characteristics of sole
proprietorship are as under:1) Ownership. The business is owned by a single individual.
2) Management and control. Being small in size, it is managed by the owner
himself. However, he may have some paid workers to assist him. In any case,
the ultimate control rests in his hands.
(3) Finance. The necessary capital to run the business is provided by the sole
owner. However, he may borrow from other sources such as friends or bank
as need arises.
(4) Risk. The proprietor himself bears all the risks. No body else has any
stake in the business.

(5) Unlimited liability. The sole trader is personally liable for debts of the
business. The creditor can lay claim not only on his business assets but also
his personal properly such as car, houses, furniture etc to recover the loan.
(6) Legal status. In law, the sole trader and his business are considered as
one. In other words, all the assets and liabilities of the business are the
personal assets and liabilities of the proprietor. We can say that the owner
and the business exist together. In other words, the two are considered as
one in the eyes of law.
(7) Relationship with customers. The sole trader tries to keep good
relationship with his customers. The customers are generally personally
known to the proprietor and their orders are higher valued.
(8) No legal formalities. The sole trader can set up or close the lawful
business as and when he likes. The operation of his business is not governed
by any special act or ordinance.
(9) Ease of dissolution. The sole trading business is as easy to end or
dissolve as is its formation. The decision of the proprietor alone ends the
business.
2. ADVANTAGES AND DISADVANTAGES OF
SOLE TRADERSHIP THE SOLE PROPRIETORSHIP
Sole proprietorship is a form of business enterprise in which an individual
owns the business, assumes all risks and operates the firm for his own
personal interest. Sole proprietor here is the sole owner, manager, controller,
financier and risk bearer. He wears many hats, of financial planning,
marketing, development, business strategies, risks, etc.

The individual runs the business alone though he may obtain the assistance
of paid employees. The sole tradership is very popular with small scale
business such as tailoring, hair dressing, retailers, accounting, legal
profession etc., etc. The sole proprietor forms of business ownership is very
popular in Pakistan. Its prospects here are also quite bright.

A minor can be admitted to the benefits of partnership alone


A minor can be admitted to the benefits of a partnership with the consent of all
other partners for the time being. This can be done in a firm which is already
existing. He cannot be a full fledged partner.
Rights of a minor in a firm
A minor has a right to have access and inspect and copy any of the accounts
of the firm.
The minor's share is liable for the acts of the firm but his personal property is
not liable for the debts of the firm.
The minor on severance can sue the partners for account.
Liability of a Minor
Liability of a minor in a firm. The share of a minor in the firm is liable for the
acts of the firm. The personal property of the minor is not liable for the debts
of the firm.
Position on attaining majority.
Within 6 months of his attaining majority, he has to give notice:
Whether he wishes to continue as a partner or not
In case he does not make such announcement, he will be treated as decided
to continue as a full fledged partner.
When he chooses to become a partner or is deemed to be partner his liability
becomes unlimited with effect from the date of his admission as such.
10. REGISTRATION OF A FIRM
Meaning of registration
Partnership is the result of an agreement between persons (minimum 2 p;
maximum 20) who agree to carry on a lawful business with the object of
earning profit. The name of the firm under which the business is carried on
may be recorded with the Registrar of Partnership Firms. The registration is
the evidence of the existence of the firm.
Is registration of a partnership compulsory?
The Partnership Act of 1932 does not make compulsory for the firms to be the
registered with the Registrar of Partnership Firms. In order to encourage the
as business, the registration of the firms is left entirely to the willingness of the
partners of the firms. However, if a firm wants to avail of the benefits of
registration, it can do so by filing a statement on the prescribed form and
depositing the required registration fee.
How registration is done?
The whole process of registration is divided in two parts:
(a) Submission of a statement.
(b) Certification.

(a) Submission of application. The application for registration of the firm is


submitted to be the Registrar of Partnership Firms on a prescribed printed
form. The statement is to be singed by all the partners. It contains following
particulars about the firm:
(1) The name of the firm.
(2) The place of the firm.
(3) The names of any other places where the firm carries on business.
(4) The partners dates of joining the firm.
(5) The name in full and permanent address of the partners.
(6) The duration of the firm.
(b) Certification. On receipt of the application for registration, the Registrar
examines the particulars given in the statement. If the Registrar is satisfied
with the information supplied, the Registrar records the name of the firm in a
register called the Register of Firms. The certificate of registration is issued to
the partners.
Changes in contents after Registration
If at any time, a firm wishes to change the name or place or wants to close the
branches, or a change takes place in the constitution of a registered firm, the
registrar after-being satisfied, will make the necessary changes in the record
according to the revised statement.
Rectification of mistake
If any mistake in the document duly corrected and signed by all the partners 3
is brought to the notice of the Registrar of Firms, the Registrar will rectify such
s mistake in the documents.
Advantages of a registered firm.
A registered firm enjoys the following advantages over unregistered firm.
1. Terms of agreement. The terms of agreement are made clear to each
partner in writing which are mostly drawn by an expert lawyer.
2. Basic legal document. If an issue arises among the partners in the form \ of
statement, it become a basic legal document for decision.
3. Income tax. If a firm is registered with income tax authority also, the Profit
of the firm is divided among the partners. The tax is charged on the income
the partners individually. In case of unregistered firm, it is the firm which pays
the tax. The partners of the registered firm, therefore, get the privilege of
lower assessment.
4. Benefits to the firm. A registered partnership can file suits against the
outsiders. If can also file suits against the partner.
5. Benefits to retiring partner. A retiring partner is not held liable for the debts
of the firm after the date of his retirement. The notice of retirement is filed with
the Registrar. This notice is considered a valid evidence of his retirement.

6. Benefits to incoming partner. A new or incoming partner can get complete


information of the registered firm from the Registrar's office. He can ^'de
properly whether to join the firm as partner or not.

6. PRIVATE LIMITED COMPANY


A private limited company is a company which can be started and registered
by two members. The private company suits the persons who wish to avail of
the merits of limited liability and also keep the business as private as possible.
Private limited company is generally a family affair. Its shareholders are
mostly relatives friends or business associates. The main privileges of a
private limited company are as follows.
Privileges of a private limited company.
1. It can be formed by 2 members but shall not exceed 50.
2. There are restriction on filing the 'prospectus' or 'statement in lieu of
prospectus' with the Registrar.
3. It can start business after registration without obtaining 'certificate *o
commence business'.
4. It is not required to hold statutory meeting and no compulsion to submit
statutory report.
5. It must have at least two directors. The maximum number of directors are
stated in the Articles of Association.
6. Directors can receive loan without the approval of the Government.
7. For holding a meeting, there should be at least two members to make a
quorum.
8. There are no restrictions as to the payments to be made to the directors
and the managerial staff.
9. It is not required to send the copies of balance sheet and profit and loss
account to the Registrar.
10. It is required to use the words (Private) Limited as the last word of the
name.
11. It cannot be listed are stock exchange of the country.
Advantages of a Private Limited Company
The main advantages of a private limited company are as under:
1. It is a concern frequently of family members who are very well known to
each other. The control is generally in the hands of owners of capital.
2. There is greater flexibility in regard to management and conduct of
business.
3. It is not required to hold a statutory meeting or file a statutory report.
4. A private company is not required to have more than two directors.
5. All the members of a private company enjoy the facility of limited liability. It
has the advantages of a public company and a partnership firm.
6. A private company can commence business immediately after its
incorporation.
Disadvantages.
The restrictions imposed under Section 2(25) of the Ordinance are regarded
disadvantages of private company as compared with a public company. The
restrictions or the disadvantages are as under:
1. It restricts the rights to transfer shares by its articles.

2. The number of members in a private company cannot exceed 50 in any


case.
3. A private company cannot issue prospectus to public nor can file a
statement in lieu of prospectus.
4. The shares cannot be quoted on stock exchange.

7. PRIVATE LIMITED COMPANY AND ITS CONVERSION INTO PUBLIC


COMPANY
Definition of a Private Company.
A private company has been defined under Section 2(28) of the Companies
Ordinance in the following words:
Private Company means a company which by its Articles of Association.
restricts the rights to transfer its shares, if any.
limits the number of its members to 50. (2 to 50)
prohibits any invitation to the public to subscribe for the shares if any or term
loans of the company.
Conversion of Private company into Public company.
A private company is formed to avail of the advantages of limited liability and
the facilities of partnership organization.
According to Companies Ordinance, 1984, there are two ways by which a
private company can become public.
1. (a) According to Section 45 of the Companies Ordinance, a private
company to become public shall have to alter its articles. The provisions
contained in Section 2(28) i.e., (1) restricting the right to transfer its shares (2)
limiting the number of its members to 50. (3) prohibiting any invitation to the
public to subscribe for any shares or term loans shall have to be excluded
from the Articles. The date on which the company alters its Articles ceases to
be a private company.
(b) The members of a private company within 14 days of the alteration of
Articles shall file with the registrar either a prospectus or a statement in lieu of
prospectus.
(c) The number of members should also be increased to at least 7 if it is less
than 7
2.
In case a defult is made in altering the Articles of private company, the
company shall cease to be entitled to the privilegexs and exeptions conferred
on private companiues.

PROMOTION AND FORMATION OF A JOINT STOCK COMPANY


1. COMPANY PROMOTERS AND THEIR FUNCTIONS
The promoter is a business term. It is used to describe the person or persons
who initially take all necessary steps to form a company with reference to a
given object and set it going. "According to L.H. Haney Promotion may be
defined as the process of organizing and planning the finance of a business
enterprise under the corporate form". In the words of Justice Cokburu, "A
promoter is one who undertakes to form a company with reference to a given
object and sets it going and takes the necessary steps to accomplish that
purpose."
Classification of Promoters.
Promoters may further be divided into three classes. (1) Professional
promoters (2) Occasional promoters and (3) Promoters. (1) The Professional
Promoters as the name signifies are the persons who form or float the
company as their profession. When the company is incorporated, they either
get the commission or a fixed amount for the formation of a company and get
it going (2) The Occasional Promoters are those persons who undertake to
form a company occasionally and take the forming or floating of a company as
their part time job. (3) The person who make all investigations, preparation
and arrangements for incorporating a company are called promoters. The
Professional promoters and Occasional Promoters generally retire after the
company is floated. The promoters, the third category, float the company for
their own self interest and take active part for its successful operation.
l-Functions of a Promoter: The main functions of a promoter are as follow:
1. To Discover an idea for establishing a company.
2. To make detailed investigation about the demand for the product,
availability of power, labour, raw material, etc. etc.
3. To find out suitable persons who are willing to act as first directors of the
company and are ready to sign on the Memorandum of Association.
4. To select bank, legal advisor, auditors, underwriters for the company.
5 To prepare essential documents of the company.
6 To prepare draft of the Memorandum of Association, Articles d Association,
Prospectus of the company and get them printed.
7. To submit all the documents, required for incorporation with the Registrar.
8. To arrange for advertisement of prospectus of the company in the
newspapers
9. To meet all the preliminary expenses for floating of a company.
10. To make contracts with vendors, underwriters and managing director of
the company.
11. To raise the required finances and get the company going.
12. To make proper arrangement for the office of the company. H-Rights of
promoters
1. Right to receive preliminary expenses.
2. Right to receive remuneration for their services.
3. Right to receive the proportionate money from co-promoters. Ill-Liability of
the promoters
1. To disclose the liability and pay the secret profits if promoters have earned.
2. Liability is upto the completion of contracts.
3. Liability on statutory mistakes or fraud in the prospectus.
4. His property becomes liable for payment even after his death.

2. FORMATION OF A PUBLIC COMPANY


The whole process or procedure of company formation is divided into four
stages namely; (1) Promotion (2) Incorporation (3) Subscription of capital and
(4) Commencement of business.
(1) Promotion stage.
It is the first stage in the formation of a company. Promotion embraces all the
activities which bring into being a public company to run a business.
Promotion starts with the conception of idea for the business to be involved
and continues down to the point at which the business is fully ready to begin
operation as a going concern. The important steps in the promotion of a
company are as follows.
(i) Discovery of business opportunity. Before starting a business, the
promoters develop an idea to start a business. They think about the existing
and future demand of the product to be produced.
(ii) Detailed investigations. After preliminary investigations, they carry out
detailed investigations about the business as to how the capital is to be
realized, the place from where the material, labour is to be collected, the
market for the goods, the size of the business, the expected profit etc etc.
(iii) Assembling different factors. After carrying out detailed investigations, the
promoters start assembling various business elements. They secure licence,
copy right if necessary, appointment of necessary employees. The financial
needs and the demand for the product is estimated.
(iv) Capitalization. A company needs fixed and working capital for establishing
and running a business. The promoters estimate the total amount of capital
needed and then find out the types and sources of raising capital. They Intact
banks and underwriters for the issue of shares, debentures.
(v) Preparation of essential documents. The promoters prepare all the
important documents for the promotion of the company like Memorandum of
Association, Articles of Association and Prospectus.
The promoters, after carrying out the various activities, give the company its
physical form. The company however cannot start business at this stage, |f
requires legal entity. For this the company has to go for registration. The
process of registration is called incorporation.
(2) Incorporation stage
The second step for establishment of a company is to get the company
incorporated or registered. The promoters have to prepare and file a number
of documents with the Registrar for the incorporation of a company. These
documents are as under:
(1) The memorandum of association signed by at least seven persons.
(2) The articles of association signed by at least seven persons.
(3) Promoters have to file a prospectus or a statement in lieu of prospectus
with the register.
(4) A list of directors and their willingness to act, duly signed by each of them.
(5) Notice of the address at which the registered office of the company will be
situated.
(6) Original copies of the receipted challans in respect of payment of duty on
share capital and the prescribed filing fee.

(7) A statutory declaration by the secretary or a chartered accountant that all


the provisions of the Companies Ordinance with regard to registration have
been fulfilled.
(8) Declaration of qualifying shares. All the directors, whose names are in the
list. have to submit a declaration certificate that they have taken up qualifying
shares and have paid up the money.
The above documents when submitted must be accompanied with requisite
filing fee. The Registrar on receipt of all the documents will scrutinize them. If
he is satisfied that the requirements of law have been fully met with, he will
register the company in the Register of Companies and issue a certificate of
Incorporation. The certificate of incorporation is a proof of the fact that all the
requirements of the Companies Ordinance have been complied with. On
obtaining the certificate, the company gets an independent legal entity. It can
sue or be sued in its name, but it cannot start the business.
(3) Subscription stage.
A private company can commence business on receipt of certificate of
incorporation. However, a public company has to fulfill another requirement of
subscription to obtain the certificate of commencement of business. The
subscription stage is concerned with the following main steps.
(i) A prospectus has been issued inviting the public to subscribe for the
shares.
(ii) Where no prospectus has been issued, a statement in lieu of prospectus
has been filed with the registrar.
(4) Commencement stage.
(i) A declaration to the effect that shares payable In cash have been allotted
upto the amount of the minimum subscription.
(ii) A declaration to the effect that every director has paid in the full amount of
the shares payable in cash.
(iii) A declaration to the effect that no money is liable to be repaid to applicants
for shares or debentures which have been offered for public subscription.
(iv) A statutory declaration by the chief executive or one of the directors and
the secretary that the aforesaid conditions have been complied, with.
The registrar on being fully satisfied that (a) the verified declaration has been
filed and (b) all other requirements of the Ordinance have been complied with,
will issue a certificate called, "Certificate of Commencement of Business". On
receipt of this 'certificate' a company is entitled to commence business.
3. BASIC LEGAL DOCUMENTS ISSUED BY A COMPANY.
There are three basic legal documents of a company. These are (1)
Memorandum of Association (2) Articles of Association and (3) Prospectus.
All the above three documents are now discussed under separate heads. (1)
MEMORANDUM OF ASSOCIATION.
Memorandum of Association is the basic document of a joint stock company.
It is known as the Charter of the Company. It sets out the limits outside which
the company cannot go. Its main purpose is to enable shareholders, creditors
and all those who deal with the company to know what is its. permitted range
of enterprise. The main clauses of the memorandum of association of a
company limited by shares have been described in Sections 16, 17 and 18 of
the Companies Ordinance as under:
Clauses of Memorandum.

1. Name clause. This clause states the name of the company. A company may
select any name but it should not resemble the name of any other company. It
should also not contain the words like king, queen, emperor, government
bodies, UNO., WHO etc. The name should not be objectionable in the opinion
of the government. The Companies Ordinance provides that the name of
company must end with the world 'Limited' so that all the persons dealing with
the company must know that their liability is limited to the extent of their
shares. In the ^se of a private limited company, the words (private) limited to
be used as the last word of the name.
2. Situation clause. It is also known as domicile clause. The company is
Squired to state the name of the province in which the office is situated. It is
also necessary to give the exact address and name of the city where the
company is heated. This clause has the following advantage.
a)
A person can known, through this clause the jurisdiction of the court
under which the company operates.
(b) It also indicates the place for holding annual meeting of the company.
(c) The creditors, customers, government know the where about of the
company.
(d) All correspondence is done at the office address of the company.
3. Object clause. This clause is the essence of the Memorandum. It clearly
defines the sphere of the company's activities. It indicates a series of objects
for which the company is started. Any business activity carried outside the
territories specified in the object clause of memorandum is ultra vires and
void.
The object clause, the most important part of the Memorandum, should be
drafted very carefully. It is quite complicated to alter the object clause later on.
If a public company whishes to start any new business not covered in the
object clause, it has to pass a special resolution in the meeting.
The object clause offers protection to the shareholders by ensuring them that
the amount collected for undertaking is not risked in any other undertaking.
The creditors also feel protected by this clause.
4. Liability clause. This clause of Memorandum contains a declaration that the
liability of the members of the company is limited to the extent of the value of
shares purchased by them. In case a shareholder is to pay the unpaid calls on
the shares, he can be compelled to pay upto the extent of unpaid amount on
the shares and beyond that nothing more.
5. Capital clause. A company having a share capital shall state the total
maximum amount of share capital with which it is registered. The capital as
mentioned is called Authorized or Registered Capital. The capital is divided
into shares of a certain value which is specified in the capital clause. For
example. "The Authorized share capital of the company shall be Rs.5,000,000
consisting of 500,000 equity shares of Rs. 10 each".
6. Association and subscription clause. This clause contains a declaration by
the subscribers (7 persons in public company and 2 in a private Ltd.
company) that they are desirous of forming a company and agree to have
number of shares written against their respective names. Each signature of
subscriber must be supported by the signature of a witness with his address.
The subscriber is required to take at least one share each.

Alteration of Memorandum. Any clause in the Memorandum may be altered by


following the conditions laid down in the Companies Ordinance. The
procedure for each clause varies.
(2) ARTICLES OF ASSOCIATION
Meaning. Articles of association is 9 legal document second in importance to
memorandum of association. The articles of association are the regulations or
by laws which govern the internal organization and conduct of a company. In
other words, it is concerned with the procedural matters in the routine conduct
d the affairs of the company.
The articles of association describe the powers of the directors, of the
directors, other officers, and of the shareholders as to voting etc. it also
describes the mode and form in which changes in the internal regulation of
the company, may from time to time, be made. The articles of association
being subordinate to the memorandum of association cannot go beyond the
limit set by it.
Contents of Articles. The main contents of the articles of association are as
under:
1. Amount of shares capital issued, transmission of shares.
2. Rights of shareholder regarding voting, dividend, return of capital.
3. Rules regarding issue of shares and debentures.
4. Procedure as well as regulations in respect of making calls on shares.
5. Manner of transfer of shares.
6. Rules regarding appointment of directors, managing directors, agents,
secretaries, and treasures.
7. Number, qualifications, remuneration, powers and liabilities of directors.
8. Declaration of dividends.
9. Convening and conduct of meetings with reference to notice, quorum, poll,
proxy, resolutions etc.
10. Rules regarding the forfeiture and surrender of shares.
11. Matters relating to account and audit.
12. Rules regarding the winding up of the company.
Alternation of articles.
According to Section 28 of the Companies Ordinance, a company may alter or
add to its articles by special resolution. The alternation made in the articles
should not conflict with the Memorandum.
The articles of association should be printed, divided into paragraphs and
serially numbered. All the persons who have put their signatures on the
memorandum of association are required to put their signatures, names,
addresses etc on the articles of association also.
(3) PROSPECTUS
After the receipt of 'Certificate of Incorporation' from the Registrar of
Companies, the promoters of a public company invite the public and financial
institutions to subscribe to the capital of the company. This notice,
advertisement or other document inviting offers for the subscription to the
share capital of the company is called prospectus. Only public companies can
issue a prospectus. The objects of issuing prospectus are fourfold.
(i) To bring to the notice of the public that a new company has been formed.

(ii) To convince those who have saving to invest about the genuineness of the
company and its future prospects.
(iii) To keep an authenticated record of the conditions on which the capital has
been raised.
(iv) To secure that the directors of the company accept responsibility for the
statements in the prospectus.
1-Contents of Prospectus
In contents, the detailed description regarding the establishment of the
company, its characteristics and its estimated future is given. The important
matters included in the prospectus are as follows.
11-Share Capital Under this head, information is provided regarding:
(i) Share capital of the company (a) Authorized (b) issued, subscribed and
paid up capital (c) Present issues offered for subscription.
(ii) Basis of allotment of shares.
(iii) Facilities available to non resident Pakistanis for purchase of shares etc.
Ill-Commission, Brokerage and Tax exemptions. This part contains the
following information. (i) Commission to be paid to the bankers to the issue.
(ii) Brokerage.
(iii) Tax exemption on investment on the shares of the company. (iv)
Exemption from custom duty and sales tax on plant and machinery, if any.
Brief history and prospects. It includes:
(i) Brief history of company. (ii) The main objects of the company. (iii) The
location of the plant.
(iv) Information about project, plant and its machinery, raw material, etc. (v)
Economic justification and marketability of the goods to be produced.
Financial Information Under financial information, the following particulars are
provided.
(i) Auditors Report. (ii) Shareholders equity and liabilities. (iii) Auditors
certificate on share capital. (iv) Estimated cost of the project and the means of
the finance.
Board of Directors
Under this head, the names, addresses, and occupation-of the board of
directors is given.
Interest of Directors This head provides information regarding:
(i) Interest of directors in dividends and other benefits. (ii) Remuneration to be
paid to the chief executive, directors and the secretary.
General Information The main information provided under this head are:
(ii) Election of directors. (iii) Powers of directors. (iv) Borrowing powers of the
directors. (v) Voting rights. (vi) Transfer of shares. (vii) Quorum of general
meeting. Miscellaneous The main contents under this head are:
(i) Place of registered office, factory. (ii) Bankers of the company. (iii) Bankers
to the issue both local and foreigner. (iv) Legal advisor, consultants to the
issue, etc.
Application and Allotment
The procedure of applying for shares, their scrutiny and allotment of shares is
made clear to the prospective investors in this section.

4. A STATEMENT IN LIEU OF PROSPECTUS


If the promoters of a public company hope to get the subscription of capital
from their own limited circle, there is no need to issue prospectus to the
public. The promoters shall have to file "a statement in lieu of prospectus'.
According to Section 53 of the Companies Ordinance, if a public company is
not issuing a Prospectus on its formation, it then must file a Statement in Lieu
of Prospectus with the Registrar of the Companies. A statement in lieu of
prospectus is defined as "a public document prepared in the Second
Schedule of Companies Ordinance by every such public company which does
not issue a prospectus on its formation by filing with the registrar before
allotment or shares of debentures, and signed by every person who is named
therein". A Statement in Lieu of Prospectus gives practically the same
information as a Prospectus and is signed by all the directors or proposed
directors. In case, the company has not filed a Statement in Lieu of
Prospectus with the Registrar, it is then not allowed to allot any of its shares or
debentures.
'A statement in lieu of prospectus' contains the following information:1. Name of company.
2. Statement of capital.
3. Description of the business.
4. Names, addresses and occupations of directors.
5. Estimated initial expenses.
6. Names of vendors and details of property.
7. Material contracts,
8. Director's interests.

6. THREE IMPORTANT LEGAL DOCUMENTS OF A JOINT STOCK


COMPANY (SUMMARIZED)
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 memorandum. 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.
3. Prospectus.

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 sale 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.