FORMATION OF A LIMITED LIABILITY COMPANY AND DOCUMENTS INVOLVED

FORMATION OF A LIMITED LIABILITY COMPANY

The steps involved in the formation of a limited liability company (be it private or public limited company) as follows:

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 filled with the registrar of companies. The documents are:

  • Memorandum of Association
  • Article of Association
  • Statement of Nominal Capital

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Step 3: The documents are stamped and lodged with the registrar of companies.

Memorandum of Association in company formation

Definition: 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.

A Memorandum of Association contains the following information:

  • 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.
  • The restriction, if any, on the power of the company.

Articles of Association Definition

: Articles of Association is a document in which the regulations which govern the internal management of the company’s affairs, the duties, rights and powers of the shareholders are stated. It complements the memorandum of association. However, where there is conflict between the two documents, the memorandum prevails.

The contents of an Article of Association include:

  •  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.
  •  Method of auditing the account of business.

Prospectus document of company formation

Definition: A prospectus is a document issued by the public limited companies only inviting’ public to subscribe for shares of the co A copy of such a prospectus, signed by the directors or proposed directors in writing, be filed with the registrar of companies Company Act defines it as: “Any notice, circular advertisement which invite the public subscription or purchase of shares company.”

Content of a prospectus

The content of a prospectus include:

  •  Particulars of the company’s past hi
  •  Information about the present position future prospects of the company.
  •  The amount of capital offered subscription.
  •  Particulars of directors and other officials
  •  Promoter’s remuneration.
  • The date of opening the lists.
  •  The nature of capital offered subscription.
  •  Amount payable on application allotment on each share.
  •  The number of founders’ shares.

Step 4: After going through the documents registrar of companies then issues certificate of incorporation to the company gives the company the powers to commence business.

Step 5: A private limited company can commence business after receiving the certificate of incorporation, but a public liability company cannot commence until it receives the certificate of trading.

Certificate of incorporation in company formation

Certificate of incorporation, which confers on the company to commence business issued by the registrar of companies, company has put on a veil of incorporation. The certificate is given out as an evidence that all the requirements of the Act in respect of registration have been complied with company and is therefore duly registered under the Act. It contains the name company, registration number and signature of the registrar.

The Company Act contains the effects of incorporation as:

  • Right of the company to own properties which are separated from shareholders.
  • Tight of perpetual existence,
  • Right to sue and be sued.
  • Tight to transfer shares.
  • Tight to borrow.

Certificate of trading

Certificate of trading is the document which the public limited company to commence business activities. It is issued to a  public liability company to enable it 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.

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