PROCEDURE OF FORMATION OF A JOINT STOCK COMPANY IN PAKISTAN

Joint Stock Company is the third major form of business organization. It has entirely
different organizational structure from sole proprietorship and partnership. There are two
advantages of Joint Stock Company. First of all, it enjoys the advantage of increased capital.
Secondary, the company offers the protection of limited liability to the investors.
The law relating to Joint Stock Company has been laid in Companies Ordinance, 1984, which
came into force on January 1, 1985 in Pakistan.
Following are the important stages or steps for the formation of a joint stock company:

Formation of joint Stock Company

PROMOTION STAGE

The promoters do the basic work for the start of a commercial or an industrial business on
corporate basis. Promotion is the discovery of ideas and organization of funds, property and
skill, to run the business for the purpose of earning income. Following steps are involved in
the stage of promotion.

1. Idea about Business
Before starting the business, promoters have to think about the nature and production of
company’s business.

2. Investigation
After deciding the nature of business, promoters go in preliminary investigation and make
out plans as regard to the availability of capital, means of transportation, labour, electricity,
gas, water etc.

3. Assembling various Factors 
After making initial investigation, the promoter starts accumulating various factors in order
to assemble them. They arrange license, copyrights, employment of necessary employees
etc.

4. Financial Sources
The promoters also decide the capital sources of the company and they work out the ways
through which capital can be generated.

5. Preparation of Essential Documents
In addition to above discussed matters, the promoters also prepare following essential
documents for the formation of company:
•  Memorandum of company
•  Articles of company
•  Prospectus of company

The promoters carrying out these various activities give the company its physical form in the
shape of:

•  Giving a name to the company
•  Sanctioning of Capital Issue

INCORPORATION STAGE
The second stage for establishment of a company is to get it incorporated.

1.     Filling of Document
Following documents are to be submitted by the promoters in the Registrar’s office.
     (a) Memorandum of Association 
     A document indicating name, address, objects, authorized capital etc. of a company.
     (b) Articles of Association
 A document containing laws and rules for internal control and management of a          
company
      (c) List of Directors
      A list of the names, occupations, addresses, along with the declaration of directors.
      (d) Written Consent of Directors 
      A written consent showing their willingness to act at directors, to be sent to the  
Registrar
      (e) Declaration of Qualifying Shares 
      A declaration certificate showing that the directors have taken up qualifying shares   and
have paid up the money or pay it in near future to the registrar.
      (f) Prospectus 
      Promoters have to file a prospectus with the registrar.
      (g) Statutory Declaration 
      A statutory declaration is to be sent to the Registrar that all legal formalities have been
completed.

2.     Payment of Registration Fee
For the registration of company, the registration fee is also paid to the Registrar. For
example
•  Application and documents filing fee
•  Registration fee
•  Stamp fee on Memorandum and Articles

3. Certificate of Incorporation
If the registrar finds all the documents right and thinks that all formalities have been fulfilled
then he issues the certificate of incorporation to promoters.

CAPITAL SUBSCRIPTION STAGE
After getting certificate of incorporation, the next stage is to make arrangement for raising
capital. For any kind of business, the company raises its capital through following sources:
•  By Issuing Shares
•  By Issuing Debentures
•  By Savings

CERTIFICATE OF COMMENCEMENT
For the commencement of business, every public company has to obtain the certificate of
commencement, which requires the fulfillment of following conditions:

1. Issue of Prospectus
A company has to issue prospectus for selling shares and debentures to public.

2. Allotment of Shares
The shares and debentures are allotted according to the pro visions of memorandum, when
applications are received from the public.

3. Minimum Subscription 
It is also certified that the shares have been allotted up to an amount, not less than the
minimum subscription. After verifying the foregoing documents, the registrar issues a
certificate of commencement of business to public company.