/ m o c Question No 15 15: Explain with detail detail t he three basic . legal legal doc uments of Joint Stock Company.OR ompany. OR e Give the details details of the follow ings: e (MO i. Memorandum o f Associ As sociation ation (MOA) r) ii. Ar t i c l e of o f Ass As s o c i ati at i o n (AOA (A OA) iii. Prospectus. f e An A n s w er: er : n Basic Legal Documents of i Joint Stock Companies: The main documents of joints lstock companies are the followings: n o l l a . w w w / i) Memorandum of Association (MOA) [Sec. 16, 17 & 18]: / Definition: : p Ac A c c o r d i n g t o L o r d Cair Cai r n s : t t h Note: The Public Limited Companies must have these three basic Legal documents.
/ mdefi nes t he “The “The M OA of a company i s it s chart har t er and defines lim it at ions and pow ers of t he company company est est o ablished ablished under under t he c Act.” . Simply Simpl y we can Say: Sa e y: “M emorandum emorandum of As Asssociat ociat ion is an off icial icial documen documentt sett ing e out t he det det ails of t he company company exist exist ence. ence.” ” r f e n i l n o l l Contents / Clauses Of Memorandum of Association (MOA) : a Followings are the main contents or clauses of . Memorandum of Association. w 1. Name Clause: w of the company that the It is the legal requirement promoters must proposed the name of the company. w a) The name of the company should he different from the / name of existing companies. /not contain the words like king, queen, b) It should also : bodies, UNO, WHO etc…. and the emperor, government name should not p be objectionable in the opinion of Govt. t t h Characteristics of MOA: Followings are the features of MOA: I. Constitution/Charter of the company. II. Essential for all kinds of companies. III. Defines objects of the company. IV. Public document. V. Evidence of registration. VI. A Contract between company ant the third party. VII. Signed by the promoters.
/ m c) The word “Limited “Limited”” is written at the end of name, in ois compulsion such case, if liabilities are limited and there c“P“ Pvt Lt d” at the for Private Company that it must use word end of name. . d) The name doesn’t hurt the religious feelings of the e people. e r 2. Situation Situati on Claus Clause: e: Every company has a registered f office. The company must show the name of province, e in which the registered office of company is situated. The registered office n address can be provided to the Registrar within 28 days of incorporation or from the date i when it commences business whichever is earlier. l This clause gives following advantages: n A person can know the jurisdiction (control) of the o court under which the company operates. It indicates the place l of annual meeting of the l company. Creditors, customers, Govt, can know about the a company’s place. . All correspondence is done at the office address of the w company. w 3. Obj Objectiv ectives es Clause: w The objects of the company are also expressed in details. / A company cannot start any work, which is beyond the / scope of objects. : of the company. It defines sphere p t t h
/ m It shows series of objects for which company is started if the company go beyond its objects then o it will be c declared It should be written carefully. . It provides protection to shareholders by ensuring them e that the amount collected for business is not risked in any e other business. r 4. Area of Ac tiviti tiv itie es Clause: f The Company must show the name of province, division e or district, in which the n companies perform its functions or Activities. It is optional i clause. l 5. Right s and Powers Clause: n The rights and powers of the company’s shareholder and o directors are also clearly mentioned in the memorandum lgo beyond their limits of association. They cannot l assigned in MOA. a 6. Liability Clause: . It is mentioned in MOA that the liability of shareholders is w limited or unlimited. If liability is mentioned then in case of w up to face value of shares, which loss they pay the amount wthey they hold and and which they have not yet yet paid (unpaid (unpaid up capital) or to the / value of unpaid guarantee. But in case of unlimited, their private property is also liable for the / recoveries of the debts. : p t t h Ultra Vires and Void.
/ m 7. Capi Capital tal Claus e: o or The companies have to mention the authorized registered capital. The capital is divided c into small units, each unit is called shares of fixed amount. Generally . in Pakista Pakistan n the value value of each each shar share e is Rs.10/ Rs.10/-- each. each. But e every company has different motives for share’s prices. It is not compulsion for the companies e that the price per r share must be Rs. 10/-, it can be vary. f 8. Association Asso ciation & Subscr iption ipt ion Clause: Cla use: e Promoters or subscribers declare that they want to form n the company and they are agreeing to purchase the i This clause also shares written against their name. contains the names, addresses land signature of promoters. Each sign is supported by the signature of n witness with his address. The promoters is required to o take at least one share each. l lof the MOA: Printin g, Sign Signature ature etc… etc… MOA: The MOA shall be: a I. Printed . II. Divided into paragraphs numbered consecutively. w III. Signed by each subscriber in the presence of at least wattest the signature. one witness who shall IV. Date. w / AL A L TERATION TERA TION OF MEMORANDUM: / Generally this document is considered non-alterable. But : clauses can be changed with the anyhow few necessary p and with the sanction of the court. The special resolution changes are t made in t h
/ m Name o Office c Objects Liability . Capital e Association e[Sec. 28]: ii) ARTICLES OF ASSOCIATON (AOA) r Definition: f “The “The AOA AOA are t he regulat ions or e by law l aw s w hich govern govern t he int ernal organizat organizat ion and conduc conduct company.” n t of a company.” i l nedural mat “AOA “AOA is concerne oncerned d w it h t he procedural proc m at t ers in t he rout ine conduct onduct of t he int ernal air s of t he company.” oaff airs l l Characteristics of ARTICLES OF ASSOCIATON (AOA): a . w w w / / : OF ARTICLES OF ASSOCIATON CLAUSES / CONTENTS (AOA): p t t h According to L.H. HONY:
In simple words:
Followings are the features of AOA: Subordinates/Controlled by the MOA. Defines duties, rights and powers of the company & its members. Regulates internal Management. Can be altered within the provisions of the MOA. Governs the way in which the objects of the company are achieved.
/ m The articles usually state the rules and regulations about o the following matters: c 1. Share Capit Capit al & Shares Claus e: I. Share capital and its division into different classes. . II. Procedure for making the call on shares. e III. Price of each share. e IV. Rights of shareholders. rto buyers. V. Transfer of shares from sellers VI. Methods of increase or decrease in share capital. f VII. Rules regarding issue of shares and debentures. e VIII. Rules regarding to dividend & its payment. n i 2. Meetings Clause: lcompany. I. Statutory Meeting of the II. General meetings of the company. n III. Notice and proceeding of general meeting. o IV. Proceedings of directors meeting. l V. Special / urgent Meetings. l a 3. Management Management & Directors Directo rs.Claus Clause: e: I. Number of directors. w II. Remuneration of directors. III. Appointment w of directors. IV. Qualification w of directors. V. Powers, rights / and duties of directors. / 4. Miscellaneous Miscellaneou s Clauses: :liabilities of auditors. I. Rights and p to depreciation and creation of II. Rules relating reserves. t t h
/ m III. Methods of securing loans. o IV. Rules for common Seal of the company. c V. Rules regarding to Arbitration, if any. VI. Methods related to underwriting commission and . brokerage. e VII. Indemnity to be paid to company officer or agent. VIII. Voting powers of the members. e r IX. Winding up of a company. Etc….. f Printin g & Sign Signing ing etc… of AOA: AOA: e The AOA should be printed, divided into paragraphs and n have put their serially serially numbered. numbered. All the persons persons who have their iare required to put their signature on the memorandum signature, names addresses, l etc. t he new changes should houl d be added added in all copies, opies, w hich hich are not yet yet iss issue to t o t he other ot her n people. o l l a AL A L TERATION TERA TION OF AOA :. According to section 28 of the Companies Ordinance, a w company may alter or add to its articles by special w should be: resolution. The changes w Not against MOA. Not against Companies Ordinance 1984. / Not illegal. / Beneficial. : liability of the members unless they Not increase increase the liability p agree. Not break t the contract with outsiders. t h
/ m Not against interests of the minority shareholders. o AL A L TERATION TERA TION Pro Pr o c edu ed u r e OF AOA A OA:: c A JSC can change its AOA by following procedure: . I. Special Resolution. e II. Information to Registrar of JSC. III. Information to Stock Exchange. e r IV. Amendments. f iii). PROSPECTUS e [Sec. 2(29)]: inition: inition : n “Any prospec prospectt us, us, notice not ice,, cir circcular i , advert advert isement isement,, or ot her invit at ion, off ering to t o the t he public publi l c for subsc ubscript ion or purchase purchase any shares shares or debe d ebent nt ures of t he company any is i s call ed ncomp prospectus.” o l In sim sim ple word w ordss: lused toto invit “The “The docum document ent w hich is used invi t e public publi c t o purc pur chase hase at he com shares har es and debent d ebentur ures es of compan panyy is cal called led Pro Prosspect pect us.” us.” . Object ives iv es o f PROS PROSPE PECT CTUS US:: w w w / / : p t t h
According to English Companies Act:
Followings are the objectives of the Prospectus: Invite public for purchase of shares. Convince to those persons who have large savings. Declare that directors are responsible for issue of shares. Inform the public that a company has been formed. Inform the public that directors are honest and hardworking. Present true and certified records about the issuance of shares.
/ m o c . e CLAUSES / CONTENTS OF THE PROSPECTUS: eof prospectus: Following are the important particulars r 1. Basic Basic Inform ation: I. Short history of the company. f II. Location of plant & machinery. e III. Major objects of the company. n IV. Information about projects and plant and machinery and i raw material etc…. V. Economic justifications of goods l produced. VI. Marketability of goods produced. n o 2. Capit Capital al Stru Structu cture: re: l I. Share capital a) Authorized capital. l b) Issued, subscribed, called-up and paid-up capital. a c) Unissued, unsubscribed, uncalled-up and unpaid-up . capital. w d) Present issues offered for subscription. w of shares. II. Basis for allotment III. The date and w time of the opening and closing of the subscription list. / IV. The name of the bank, the dates and time for / submitting application for sale of shares should be stated : in it. p t t h
/ m V. The application money receivable from each shareholder is stated. Whether, the value o of each share is cor not. receivable in full at the time of application VI. The amount of minimum subscription if the shares . are offered to the public for subscription. e VII. Benefits present for non-resident Pakistanis for e purchase of shares. r 3. Company Management: Management: f I. Complete information about history, objects, and e current business of the company. n II. The experiments and backgrounds of the promoters. imanaging directors and III. Full addresses of managers, l other directors of the company. n 4. Board of Directors: o I. Names, addresse addresses s and occupation occupation of the board board of directors are mentioned. l l 5. Interest Interest of Directors a : Interest of directors in dividend and other benefits. . Remuneration to be paid to the chief Executive, directors and the w secretary. w 6. Projects roj ects of th e w Company: I. Complete details of the project / Cost. / Financing. Location. : Utilities like p water, power, nature of the products etc…. t t h
/ m o c 7. Financial Information: . I. Auditor’s report. e II. Shareholders Equity & Liabilities. e III. Auditors certificate on share capital. IV. Estimated cost of project and r sources of finance. f 8. General eneral Informatio n: e I. Quorum of general meetings. n II. Elections of directors. i III. Powers of directors. l IV. Appointment of chief executive. V. Borrowing powers of directors. n VI. Voting rights. o VII. Transfer of shares. l l and Tax 9. Commission Commiss ion,, Brokerage Tax Inform ation: I. Brokerage. a II. Commission to be paid to the bankers for the . issuance of shares and debentures. w III. Tax exemptions on investments on the shares of the w company. w custom duty and sales tax on the IV. Exemptions from plant and machinery, / if any. / 10. Miscella iscellane neous ous Informa Information: tion: :the company for transactions. I. Bankers of II. Place of p registered office. III. Places t of sub branches. t h
/ m IV. Bankers to issue both local and foreigner. V. Legal advisors, consultants, lawyers o to issue shares c and debentures, etc…. . 11. Memorandu morandum: m: e I. The contents of MOA along with the name address and occupation of persons who have e signed it must be r stated in the prospectus. f e 12. Rep o r t s : n I. By the auditor, If the company has already been iissue of prospectus the carrying on business prior to the l report must contain: a) Profit or loss account. n b) Balance sheet o c) Cash Flow Statements d) Statement Statement of change changes s l in Equity, Equity, etc….. etc….. l prospects of the company on II. By experts. About future past experiences. a . w w w / / : p t t h CONCLUSION: Joint Stock Companies deal with three important documents i.e. MOA, AOA, and Prospectus. MOA is used by management as well as public public whereas whereas AOA is only used by internal Management and Prospectus is used to invite general public for purchasing shares of the company.
