Basic Legal Document Issued By A Company

BASIC LEGAL DOCUMENT ISSUED BY A COMPANY:
There are three basic legal documents of a company. There are

1- Memorandum of Association.
2- Articles of Association and 
3- Prospectus.

(1) Memorandum of Association:
Memorandum of Association is the basic document of 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 shareholder, creditors and all those who deal with the company to known what is it. Permitted range of enterprise. The main clause of the memorandum of a company limited by shares has been described in sections 16- 17 and 18 of the companies ordinance as under:

1. Name Clause: This clause state 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 U.N.O W.H.O etc the name should not be objection able In the opinion of the Government. The Company’s Ordinance provides that the Name of Company must end with word “Limited” so that the entire person dealing with the company must know that their liability is limited to the extent of their shares. In the case of 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 required 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 located. 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. Objective 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 virus and void.

The objects 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 wishes 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 another undertaking. The creditors also 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 up to 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 capita! as mentioned is called Authorized o Registered capital. The capital is divided into shares of a certain value which i 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.16 each.” 6. Association and subscription clause This clause contains a declaration by 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 a number of shares written against their respective names. Each signature of subscriber is required to take at least one share each. Alteration of memorandum. Any clause in the memorandum may be altered following the conditions laid down in the companies ordinance. The procedure for each clause varies.




(2) ARTICLES OF ASSOCIATION

Meaning, An article of association is a legal document second importance to memorandum 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 procedure matters in the routine conduct of the affairs of the company.

The articles of association describe the powers 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 or association cannot go beyond the limit set by it.

CONTENTS OF ARTICLES

1. Amount of shares capital issued, transmission of shares.
2. Rights of shareholder regarding voting, dividend, 
3. Rules regarding issue of shares and debentures. 
4. Procedure was well as regulations in respect  
5. Manner of transfer of shares. 
6. Rules regarding appointment of directors, managing directors, agents secretaries, and treasures.
7. Number, qualification, remuneration, powers and liabilities of directors. 
8. Declaration of dividends. 
9. Convening and conduct of meeting with reference to notice, quorum, pool, proxy,

resolutions etc. 10. Rules regarding the for feature and surrender of shares. 11. Matters relating to account and audit. 12. Rules regarding the winding up of the company.

Alteration of Articles:

According to section 28 of the company’s ordinance, a company may alter or add to its articles by special resolution. The alteration made in the articles should not conflict with the memorandum.

The articles of association should be printed, dividend 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 incest 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

statement in the prospectus.

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 iflcluded in the prospectus are as follows.

1) 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) Basic of allotment of shares. iii) Facilities available to nonresident Pakistan for purchase of shares etc.

2) Commission Brokerage and Tax exemptions: The par contains the following information.

i) commissions 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.

Prospectus 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 Shareholder 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 the 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: i) Appointment of chief executive. ii) Election of directors. iii- Powers of directors. iii) Powers of directors. iv) Borrowing powers of the directors. v) Voting rights. vi) Transfer 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 security and allotment of shares is made clear to the prospective investors in this section.

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