6 Prerequisites that Must Be Followed by a Joint Stock Company During Incorporation

Joint Stock Companies have an independent legal entity separate from the owners, viz., and shareholders. They gain the legal status by being registered under the Companies Act, 1956 (as amended from time-to-time) with the Registrar of Companies located in the each State headquarters. Companies Act 2006 replaces the Companies Act, 1956 and its subsequent amendments.

Segregation of ownership and management is a typical feature of the joint stock companies. In the case of companies shareholders are the owners of the company. Since it is not possible to exercise their rights on day-to-day basis they appoint their representatives as Directors who constitute a Board of Management. Transferability of shares is another feature of a joint stock company. Such transfer is governed by the rules of the regulator, viz., Securities Exchange Board of India (SEBI).

Being an artificial legal person the company enjoys a perpetual legal existence. The company can die only a legal death, i.e., after complying with all legal formalities.

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A limited company comes into existence subject to compliance with following conditions:

(a) Memorandum and Articles of Association are prepared and the purpose and objectives of such an association and for which the company is formed are spelt out.

(b) The Registrar of Companies issues the Certificate of Incorporation and Certifi­cate of Commencement of business (latest in case of a public company) and the company should display it prominently.

(c) All the important transactions of the company should be supported by a reso­lution of the board of directors.

(d) The person authorized for the purpose by a resolution of the Board of Directors should explain all transactions/legal documents. Address of the registered office should be mentioned in all documents.

(e) Company’s common seal when required to be affixed to any document, re­quires prior authorization by a resolution of the Board of Directors. It should be affixed as per the provisions mentioned in the Articles of Association of the Company.

(f) A search should be made at the Registrar of Companies (RoC) within 30 days by lending institutions where credit facilities are granted. Charge over compa­nies should be registered with the Registrar of Companies within 30 days from the date of execution of documents. A second search should be made as soon as possible after 30 days of execution of documents in receipt of certificate of charge.

The advantage of registration is that the charge becomes binding upon the company even in its winding up and also on every subsequent purchaser of property covered by the charge. Charge, which is not registered, becomes void against the liquidator and any creditor of the company.

The capacity of these types of organizations to raise resources is comparatively high. The personal property of the shareholders is not in danger in the event of any failure of the company as the company has a legal status separate from owners.