Main documents for incorporation of joint stock company : memorandum, articles, prospectus

Memorandum of association

It is the main document of the company. It defines the objectives, powers and its relationship with the outside world. The company works within the framework of the memorandum. The memorandum of association sets out the constitution of the company. It is so to speak, the charter of the company and provides the foundation on which the structure of the company is built. It enables persons who deal with the company to know its permitted range of activities.

The main content of memorandum of association are:

Name clause:
It includes about the name of the company. Name of the company should end with word ‘limited’ or ‘private limited’. Care should be taken while enclosing name of the company. The names that already registered should not be used. Change in name of the company requires special resolution and approval from the concerned department.

Situation clause:
It is also dominant clause. It must have registered office. All the official communication may be sent by concerned office or other organizations in a specified location. Therefore, there is need to maintain registered office location. Once the location is set then it is very difficult to change the location.

Object clause:
It is important part of memorandum. It must clearly state the objective of the company for which it was established. It informs the members about the objectives. It can carry out only those activities which meet the objectives in the memorandum.

Functional clause:
It includes the functions of the objectives of the company. It should be within the objectives.

Capital clause:
It includes the amount of authorized capital which can be utilized by the company. It includes the amount of share capital and the considerations of issuing and subscribing the share capital. It must include the nature of shares and face value of share with the prices of shares.

Liability clause:
Memorandum must clearly state that the liability of shareholders up to the extent of face value of shares. In company limited by guarantee it must state the guarantee sum too.

Association and subscription clause:
It states that the member themselves agreed to organize and carry out business. In case of private company at least one signature from promoter and in case of public company at least 7 signatures is needed.

Agreement clause:
According to company act 2063, clause 18.p., public company is desired to do following things.

  1. If promoter or any other partner is entitled to subscribe share, they must pay in each.
  2. If Company is to enquire any property from promoter at the time of commencement of its transaction.
  3. If Company itself is to bear expenses incurred on the corporation.

Articles of association

It is another important document of company. The document which defines the rights, powers and duties of the management, the modes and manners of carrying the company’s business, is called articles of association. It shows the relation between the company and its members and relation among the members. It is subordinate to memorandum. The information related is:

1. Director related

  • Number of directors
  • Provision of alternative directors
  • Minimum number of shares to be directors of the company
  • In case of public company, qualification and number of independent directors
  • Power and duties of BOD
  • Authorities of directors
  • Delegation of authority
  • Provisions relating salary, allowances and facilities of directors

2. Meeting related

  • Procedure for conducting general meeting and notice for such meeting
  • Provision relating to decisions of general meeting and BOD and duplicate copies and inspection
  • Quorum for meeting of BOD, notice and proceeding of meeting.

3. Share related

  • Right, powers and restriction attached to share
  • Provision relating to transferability of share
  • Matters on altering the authorized share capital
  • Matter of forfeiture and reissue of share.

4. Other particulars

  • Appointment of company’s secretary
  • Account books and audits of the company
  • Provision on power to raise the loans

It is an invitation to the public to purchase shares or debentures of the company. Any circular, advertisement, offer or any other document by which a company gives invitation to the public to subscribe to its shares and debentures is known as prospectus. According to the company act 2063, the prospectus contains the following matters.

  • Information related to management and the objectives of the company
  • The number of shares to the subscribed by directors and the cash to be received from them.
  • Capital structure of the company divided into authorized, issued, subscribed and paid up share capital.
  • Terms and mode of payment, issue of shares on discount or premium
  • Details about brokerage, underwriting commission and preliminary expenses.
  • Estimated expenditures for the company and estimated income at least for coming 3 years.
  • Other necessary particulars.

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