Legal Documents of Joint Stock Company
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The three legal documents of Joint Stock Company are:
(a) Memorandum of Association
(b) Articles of Association and
(c) Prospectus
(1) Memorandum of Association
Memorandum of association is the basic document of the Joint Stock 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 cannot go. The purpose of memorandum of association is to enable shareholders and creditors and all those who deal with it to know the 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 subscribers 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 of the Companies Act 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 article of association is the second important document 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 and debentures, the payment of dividends, maintenance of accounts, alteration of capital, winding up etc.
The article of association is subordinate to the memorandum. It cannot include any power which is prohibited or excluded by the Memorandum and the Companies Act. According to Companies Act, a company limited by shares can choose to adopt table ‘A’ in the First Schedule which contains model rules and regulations. 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 Act can be altered or added by special resolution.
(3) Prospectus
It is a valuable document issued by the company for rising 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 main 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.
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References
Ch., M. A., & Afzal, S. (2010). Advance Accounting. Lahore: Azeem Academy Publisher and Booksellers.
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