Once all the required documents are properly filled with the registrar of companies is ratified with what is contained in these documents. The registration brings the company into being and the companies issued with a certificate of registration. The registration gives a company an identity that is separated and distinct from its owners. From the date of incorporation the company becomes a body corporate with the name powers and rights and obligations of an incorporated company. The process of forming a company is formalized when a certificate of incorporation issued has inclusive evidence that all the information has been
complied with and that the company is duly registered.
NB – A private company can start its business operations immediately it is issued with a certificate of incorporation, this is because the company does not have to invite the members of the public to buy shares.
A public limited company must proceed to issue proposals inviting the members of the public to buy shares. (A prospectus a notice or circular of advertisement inviting the public to purchase the shares of a company). Public limited companies can only be allowed to purchase goods only when the registrar is satisfied that-:
- The company has raised a minimum amount of capital as required by the memo.
- That every director has paid to the company the minimum amount of money on the shares to be taken.
- That there’s a declaration by at least one director that the company shall comply with the regulations stipulated by the law that governs companies.
Once the registrar is satisfied by the above requirements then the public limited company is issued with the certificate of trading which will enable the company to commerce its operations.
Ownership and Management of Companies
1.Ownership
A company is owned by any person who has subscribed and purchased that company’s shares. The owners of a company are known as shareholders and their names are entered into the company’s registrar.
Each share holder has a claim in the property of the company proportional to the shares held. The shareholders of a company have unlimited rights to the transfer or sale of their shares in the company.
2.Management
The management of a company is in the hands of the board of directors. The initial directors stay in the office till the first meeting (AGM) is held at which new directors are elected. The size of the board is usually determined by the size of the company. The board of directors is charged of formulating and overseeing the implementation of company policies.
The board is normally supported by a terms of profession employed to the responsible for the day to day management of various departments. For a public limited company, the directors are required by law to present the company’s financial statement at the AGM meetings and filled with the registrar of companies.
Sources of Capital of a Company
- From the public through the sale of shares
- From commercial banks ad other financial institutions
- government institutions i.e. KIT, ICDC e.t.c
- Suppliers inform of trade credits.
- The business itself inform of retained profits
- Higher purchase traders.
- Rent revenue earnings from any investments.
1. Public limited companies
These are stock joint companies that have sold stock to the general public and thus attracts public money in form of share capital I,e ordinary or preference shares. Such companies are usually quoted at the stock exchange where shares are bought and sold through stock brokers.
These companies usually raise large size of money from the public and in order to do so the companies must;
Obtain permission from the development market authority also known as “ New issue committee” this committee assesses the financial soundness of such companies before allowing theme to attract public money. The aim is to safeguard the interests of public investors. The company in need of public money will have to obtain permission from the Nairobi stock exchange council before it can be allowed to have its shares dealt with.
2. Private limited companies
These companies are formed by submitting the necessary requirement to the registrar of companies ( the five documents) Once this has satisfied the registrar of companies such a company will receive a certificate of incorporation.
The private limited companies are usually not allowed to advertise their shares to attract public money and as such they sell their shares privately ( private placing to the interested members of the public. Like public limited companies, private limited companies have limited liability, their shares are not fully transferable as they are not quoted at the stock exchange. Any transfer of shares requires the consent of other share members of the company.
Advantages of a Company
1. More capital can be raised since it has large membership
2. The company offers better collateral for loans to be advanced.
3. Limited liability secures private property incase of inability to pay debts.
4. The companies have continuity i.e. have perpetual life or succession.
5. A company has a liability to hire highly qualified professionals facilitating better management
6. Shares are easily transferable.
7. The companies have legal identity and therefore no conflicts to its members.
Disadvantages of a Company
1. Difficult to form since it is costly and has long legal procedures
2. The company has restricted operations by the memorandum of association
3. Slow decision making due to long approval procedures
4. Limited ownership caused by land of control of the firm
5. The agency burden may cause mismanagement when especially the board is weak.
6. Double taxation especially of the dividends
7. Lack of secrecy since the company has to publish its financial status annually.
Main Features of Joint Stock Companies
As already noted a joint stock company is an association of people who contribute capital to form common stock in order to carry on a business activity for product motive. The company formed comprises- corporate status and is registered under the
company’s act.
A joint stock company may be public or private company and its main features include;
- Legal personality – the company has identities separates from that of other persons contributing capital and can therefore hold property, contract in its own name sue and be sued.
- The shares are transferable – the share holders can sell their interest in the companies to other persons willing to invest in it (freely for public ltd company but limited to the consent of the rest of the shareholders for private company.
- Common sill – as a separate entity it will be necessary for a joint stock company to sign documents and such signatures are normally embodied in a common sill of a company. The sill is kept under custody of the responsible offices.
- Members/ shareholders can not bind the company by their Acts
- Individual/ members are not entitled to take part in business since it is managed by the board of directors
- Shareholders have a limited liability.
Advantages of Joint Stock Companies
1. The liability of share holders is limited to the capital contributed by shares guarantee.
2. A joint stock company is going concern implying that it has perpetual existence separate from that of the shareholders.
3. A joint stock company is an artificial legal person independent of the shareholders and it can own its assets and liabilities.
4. The shares of a joint stock company in particular public limited company are freely transferable.
5. The shares of a joint stock company can easily be used as security for loans making it easy to obtain loans.
Disadvantages of Joint Stock Companies
- It lacks secrecy and privacy since it requires audited financial statement annually.
- The formation of a joint stock company requires long legal formalities.
- They are difficult to form since they require a heavy capital investment.
- Joint stock companies can not increase their capital investments beyond the legally authorized capital.
- The decision making process of joint stock company is slow and bureaucratic due to consultations.
- Joint stock companies are not flexible to changes.
Dissolution of a Joint Stock Company
When a company has started its expected to continue with its operations to the future since it is a form of business with perpetual succession.
Termination of the life of a company may be through;
1. Failure to commerce business within one year of its formation – upon this it may be would up by its court order on application.
2. The membership falling below the required minimum and this dissolution may be decided by a court order.
3. Accomplishment of the purpose or expirely of the period of operation.
4. The registration if it fails to comply with statutory cooperation e.g failure to file annual files to the registrar of companies or engaging in illegal activities.
5. A resolution by members to voluntarily wind up the company which may arise through.;
- where the company does not have a future on that line of business
- The members wish to sell it as a going concern in order to share profits.
- Where one company is acquired by another and the members wish to discontinue it so as to terminate its existence a separate legal entity.
6. Through a merger with a larger company
7. Insolvency – the company is not able to meet its obligations.
Holding Companies
The company Act of the laws of Kenya defines a holding company as one which has more than half of equity share capital of another company of which it is a member or controls a bigger percentage of the board of directors of one or more other companies which are called subsidiary companies.
A holding company may be public or private depending upon wishes of the promoters or shareholders.
In Kenya a good example of a holding company is ICDC.
