Formation Of A Limited Liability Company

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Hello welcome to this blog on the formation of a limited liability company:

The steps in the formation of a limited liability company can be explained briefly as follows:

STEP 1: The promoter(s) devices a scheme of capitalization, bearing in mind the cost of formation, assets to be bought and working capital.

STEP 2: The promoters is required to secure the services of a solicitor to prepare certain documents to be filed with the registrar of companies. The documents are:

  • Memorandum of association
  • Article of association
  • Statement of nominal capital

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

Memorandum of Association

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 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:

  1. The name of the company which must end with the word Limited.
  2. The registered office of the company
  3. The amount of authorized capital and the various shares into which it is divided.
  4. A declaration that The Liability of the members are Limited.
  5. The names of the founders of the company and the number of shares taking up by them.
  6. Status of the company, that is, private or public.
  7. The objects of the company
  8. The restriction, if any, on the power of the company

Articles of Association

Articles of association is a document in which the regulations which govern the internal management of the companies affairs, the duties, right and powers of the members are stated. Its compliments the memorandum of association. Where there is conflict between the two documents, the memorandum will prevail.

The content of an article of associations are:

  1. The method of issue of capital
  2. Method of holding meetings
  3. Defined powers and duties of directors
  4. The rights of shareholders
  5. How directors are to be elected
  6. How auditors are to be remunerated.
  7. Method of sharing dividend
  8. Transfer and forfeiture of shares
  9. Method of audit

PROSPECTUS

  • It is an invitation to the public to purchase shares or debentures. It is most often issued by public limited companies.
  • A prospectus gives detailed information about the promoters and directors of a particular company.
  • The document contains reports by the companies auditors, regarding past profits, losses and dividends declared.
  • A prospectus seek to explain the types of shares available for sale to the members of the public.

Content of a prospectus

  1. Particulars of the company’s past history
  2. Information about the present position and future prospects
  3. The amount of the capital offered for subscription
  4. Particulars of directors and Order officials
  5. Promoters remuneration
  6. The date of opening the lists
  7. The nature of capital offered for subscription
  8. Amount payable on application and allotment on each share
  9. The number of founder’ss share

STEP 4: After going through the documents, the registrar of companies then issues a certificate of incorporation to the company. This gives the company the power to commence business.

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

Certificate of Incorporation

Certificate of incorporation which confers legal status on the company to commence business is issued by the registrar of companies, i.e., the 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 has been complied with by the company and it is therefore dully registered under the act. It contains the name of the company, registration number and signature of the registrar.

Section 37 of the company act contains the effects of incorporation as:

  1. Right of the company to own properties which are separated from members
  2. Right of perpetual existence
  3. Right to Sue and be sued
  4. Right to transfer shares
  5. Limited liability
  6. Right to borrow

Certificate of Trading

Certificate of trading is a document which allows the company to commence business activities. It is issued to public liability company to commence operation after the company had been given the certificate of incorporation. If it is a private company, it is at Liberty to commence business forthwith without the certificate of trading.

Revision Questions

  1. What are the steps of formation of limited liability company?
  2. Explain memorandum of association
  3. Explain articles of association
  4. What is certificate of incorporation and certificate of trading in the formation of a limited liability company?

Visit my Next blog on the characteristics, types, similarities, defferences of the limited liability company. [Click here to join the class]

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