When it comes to the formation of private company or public limited liability company, there are steps.
Step 1: The promoter(s) devise a scheme of capitalization, bearing in mind the cost of formation, assets to be bought and working capital.
Step 2: The promoter(s) are required to secure the services of a solicitor to prepare certain documents to be filed with the registrar of companies.
The 5 important documents necessary during company formation are:
- Memorandum of Association
- Article of Association
- Certificate of Incorporation
- Certificate of Trading
Step 3: The documents are stamped and lodged with the registrar of companies.
1. Memorandum of Association MOA
Memorandum of Association is a document forming the constitution of a company and defining its objectives and powers with regard to its dealing with the outside world.
It is the document containing the rules and regulations which govern the external relationship of a company with outsiders.
Once registered, the memorandum becomes a public document.
Information Contained In a Memorandum of Association
The information contained in a Memorandum of Association of a limited liability company include:
- The name of the company, which must end with the word “Limited” or “Plc”
- The registered office of the company
- The objectives of the company
- The amount of authorized capital and the various shares into which it is divided.
- A declaration that the liability of the members are limited.
- The names of founders of the company
- Status of the company, that is, private or public company.
- The restriction, if any, on the power of the company.
2. Articles of Association AOA
Articles of Association is a document in which the regulations which govern the internal management of the company’s affairs, duties, rights and powers of the shareholders are stated.
It complements the memorandum of association. However, where there’s conflict between these 2 documents, the memorandum prevails.
Contents of an Article of Association
The AOA contains the following:
- The method of issuing capital
- The Method of holding meetings
- Definition of powers and duties of directors
- The right of shareholders
- How directors are to be elected
- How auditors are to be remunerated
- Method of sharing dividend
- Transfer and forfeiture of shares
- Method of auditing the account of the business.
Also Read: What really are shares of a company?
A prospectus is a document issued by the public limited companies only inviting the public to subscribe for shares of the company.
A copy of such a prospectus, signed by the directors or proposed directors in writing, must be filed with the registrar of companies.
The Company Act defines it as “Any notice, circular, advertisement which invites the public for subscription or purchase of shares of a company.”
Content of a Prospectus
A Prospectus contains the following:
- Particulars of the company’s past history
- Information about the present position and future prospect of the company.
- The amount of capital offered for subscription
- Particulars of directors and other officials
- Promoter’s remuneration
- The date of opening the lists
- The nature of capital offered for subscription
- Amount payable on application and allotment on each share
- The number of founder’s shares.
At this point, here comes two more steps in the formation of a limited company.
Step 4: After going through the documents, the registrar of companies at the Corporate Affairs Commission, then issues a certificate of incorporation to the company. This gives the company the power to commence business.
Note: A private limited company can commence business after receiving the certificate of incorporation, but a public limited liability company cannot commence business until it receives the certificate of trading.
4. Certificate of Incorporation
Certificate of incorporation which confers legal status on the company to commence business, is a document issued by the registrar of companies.
This means that the company has put on a veil of incorporation. The certificate is given out as evidence that all the requirements have been complied with by the company and is therefore duly registered under the Act.
The certificate of incorporation contains name of the company, registration number and signature of the registrar.
The Company Act contains the effects of incorporation as:
- Right of the company to won properties which are separated from shareholders.
- Right of perpetual existence
- Right of perpetual existence
- Right to sue and be sued
- Right to transfer shares
- Right to borrow
5. Certificate of Trading
Certificate of trading is the document which allows the public limited liability company to commence business activities.
It is issued to enable public limited liability company commence operation after the company has been given the certificate of incorporation.
If it is a private limited company, it is at liberty to commence business immediately without the certificate of trading.
Important Documents in Company Formation (Summary)
There you have it, the important documents in company formation. From the Articles of Association to the Memorandum of Association, Prospectus, certificate of incorporation and trading.
My question, which of these company documents do you think is the most important? Let’s have your comment in the box provided below.