A company is an artificial system created by law. It is a functional unit that combines authority, employers, stakeholders, common goals and strategy to achieve success in the certain sphere of business. People intending to become members of a company are required to contribute some capital, which will be used to form and run a business that is expected to maximize profit gains. However, a company has to consider several legal aspects required by the law concerning the establishment of the company, employment of workers, health and safety issues and the content of contracts of appointments before beginning its operations.
The setting up of a company involves a series of steps. The first step of forming a company is promotion. At this stage of setting up a company, people known as company promoters are responsible for coming up with the business idea that leads to the formulation of the company. The promoters of a company are responsible for the collection of all the logistics required to determine whether the conceived business idea can be implemented to form a successful business. Company promoters are authorized by law to select suitable people who will be responsible to act as the first directors. The name of the intended company is also formulated by company promoters.
According to the law, the promoters of a company are required to select some of the important personnel, who perform various tasks for the newly formed company. For example, promoters are required to select a bank in which the company will use to receive and make payments in the course of its business activities. Company promoters are also charged by law with the responsibility of appointing a company auditor and underwriter for the company. The law also requires company promoters to select the premises, which newly formed company will use as its official location. All contracts that company promoters enter into on behalf of the company are also recognized by law to be valid contracts. Finally, company promoters are required to submit all the necessary documents to the relevant authorities in order to ensure that a company is incorporated and recognized by law(Steingold, 2011).
There are two main documents required by law before a company can start its operations. The first document is known as the memorandum of association (MOA). Memorandum of Association is a document that contains a number of clauses that give various details about the company. For example, the MOA contains a name clause, which outlines all the matters that affect the name of a business. The MOA also outlines all the matters that affect the official location of a company as well as an explanation of all the objectives of the new company. The extent to which the shareholders of a company are liable to pay for the debts of the company are also outlined in the company’s MOA. Another clause contained in the MOA includes the capital clause that outlines the administration of the company’s capital. The MOA also contains the association clause that contains the personal details of all the shareholders of the business(Steingold, 2011).
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The second main document required by law, before a business can start its operations, is the articles of association. The basic rules and regulations that will be used to govern the business are contained in the articles of association of a company. One of the contents of the articles of association of a company is a description of the amount of share capital that has been issued to the shareholders of a company. The articles of association of a company also outline the rights of each voter in a business in terms of matters that relate to the issue of shares and debentures of a company. The procedure that should be followed during the transfer of shares of a company is also outlined in the articles of association of a company. The articles of association of a company also explain the rules that have to be followed when the company is appointing its directors, agents and secretaries. Matters that will be used to govern the convening of company meetings are also outlined in a company’s articles of association(Border & Fairweather, 2004).
The law also requires that a company issues a prospectus before the commencement of its operations. A prospectus is a document issued by a company as a form of advertisement or invitation of the public to subscribe in the company’s shares. The prospectus outlines the amount of money required on the application and allotment stages of issuing shares of a company. The names and addresses of important administrators of the company such as the company’s directors, promoters and secretaries are also outlined in a company’s prospectus. Finally, a company’s prospectus also contains information about the amount of shares that were subscribed by the public and the amount of authorized and issued share capital.
The law also has some additional requirements that company directors must meet before a company can start its operations. For example, company directors are required to file a list that contains the names of directors that have agreed to act as the managers with the registrar. All directors of a company are required to submit a consent letter to the registrar, indicating that they have accepted to act as managers of a company. Company directors are also required to subscribe the set qualification shares of a company that are usually outlined in the articles of association of a company (Browning, 2001).
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A company is also required by law to obtain a letter from the registrar of companies indicating that the name chosen for the company has been accepted by the registrar. A statement outlining the amount of capital that a company has been authorized to collect from the public is also required from a company. The law also requires a company to submit a statutory declaration indicating that it, the company, has met all the formalities required by the law whenever a new company is being established. During the submission of the various documents outlined above to the registrar, a company is also required to attach the receipt it obtained when it was paying its registration fee together with all the documents. Once the registrar of companies receives the above documents and is satisfied with that a company has met all the requirements of establishing a company, it issues a certificate of incorporation to the company hence authorizing the company to start conducting business(Border & Fairweather, 2004).