LIMITED COMPANIES (JOINT-STOCK COMPANIES)

LIMITED COMPANIES (JOINT-STOCK COMPANIES)

Limited companies are a type of business organization which is owned by shareholders.

The capital of the company is divided into small units, which are called shares. And therefore, the owners of the company are called shareholders, as they are buying shares in order to join the company. There should be a minimum of 2 shareholders to start a limited company.

Definition:

A joint stock company is an association of people who contribute towards a joint stock of capital for the purpose of carrying out business with the view to make profit.

What are shares and who are shareholders?

The stock of capital is divided into many small units called shares. People who buy these shares are known as shareholders. The company is legally owned by shareholders.

Who Manage business?

Shareholders elect board of directors to manage the business.

What is dividend?

The total profit is distributed to all shareholders in relation to shares they possess (have). Each part of profits paid to shareholders is called dividend.

What is liability of a shareholder in a limited company?

Shareholders liability for the debt of a joint stock company is strictly limited to the value of the shares they possess (have).

A shareholder bears losses only to the amount of shares they have. They have no further liability for the company’s debts.

Features of Limited Companies (Joint Stock Companies):

ü It has a separate legal existence from its shareholders.

ü Shareholders are the owners of the company.

ü Company is managed by board of directors.

ü Shareholders have limited liability.

ü There must be a minimum of two holders to start a limited company.

ü Companies are regulated by companies’ act 1890.

ü Profits of the company are divided among the shareholders in form of dividend.

ü A common seal is used to sign the important documents.

Types of Limited Companies (Joint Stock Companies):

There are two types of limited companies. They are:

1.     Private Limited Companies.

2.     Public Limited Companies.

Formation of Limited Companies (Joint Stock Companies)

The following procedures are followed to form a limited company.

·        The promoters (founders) of the company appoint a solicitor to prepare the following documents.

1)    Memorandum of association

2)    Articles of association

3)    Statutory declaration

·        These documents are sent to the registrar of companies

·        After inspecting the documents, if satisfied, the registrar will issue the certificate of incorporation.

·        A private limited company can now collect money from shareholders and start business.

·        A public limited company must first certify that it has collected the money from the shareholders. The registrar will then issue a certificate of trading so that the public limited company can start the business

ü Memorandum of association:

This document deals with the external relationship of the company and includes the following clause:

a)     Name of the company.

b)    Registered office.

c)     Objective of the company.

d)    Statement of limited company.

e)     Amount of share capital.

f)      Statement intent to form a limited company.

ü Articles of association: This document contains the internal rules of the company such as….

a)     Rights and obligations of the directors

b)    Procedure for calling a general meeting

c)     Procedure for electing the directors

ü Borrowing powers of the company

ü Statutory declaration: It confirms that all legal requirements have been complied with.