Regulatory Practices Instituted by Governments
A business is not considered a legal entity if it is not registered as business in the country where it operates. All persons desirous of starting a business must first be registered with the government agency authorized to carry out registration of business in their country.
A sole trader only needs to register his business by meeting the requirements outlined for sole traders by the registering office and filling out the required documents.
Partnerships are also registered by the completion of a registration document. The names of all the partners must be listed on the document. Partners in a business are advised to draft a Deed of Partnership. This document sets out all the rules that govern the partnership and will thus help to prevent conflict among partners.
The formation of public and private limited liability companies involves the preparation of a number of documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements which were laid down by the Companies Act, the promoters of the company must present the following documents:
1. The Memorandum of Association – this document governs the company’s relationship with the outside world. It contains:
(a) The name of the company
(b) The address of the registered office
(c) The objectives of the A statement of limited liability to members
(d) The amount of capital to be raised by the selling of shares and the types of shares to be issued
(e) The number of shares to be taken by the directors
(f) Statement of intent to form a limited liability
2. Articles of Association – this document contain the internal rules and regulations which govern the company. It contains:
(a) The rights and obligations of the directors
(b) The procedures for calling an annual general meeting
(c) Procedures for electing directors
(d) The borrowing powers of the company
In order to effect the registration of a company, the Memorandum and Articles of Association must be prepared by a lawyer or any person named in the articles as a director or company secretary and sent to the companies registering office.
3. Statutory Declaration – this document states that the promoters of the company have compiled with the Companies Act. It is a signed statement from each director certifying their willingness to serve.
4. Certificate of Incorporation
Once all three documents above have been submitted and the Registrar of Companies is satisfied that all is in order, it will enter the name of the company on the register, and issue a certificate of incorporation. The certificate of incorporation is proof that all requirements of the Companies Act have been complied with. The certificate of incorporation establishes the firm as a legal body.
5. The Incorporated Company
A company always means an incorporated company. If a company is not incorporated, it is really a large partnership. Every business that has more than twenty shareholders must be registered as an incorporated company. The advantage of incorporation is that each member’s liability is limited. At this stage it is only the private limited company that may begin trading.
6. The Prospectus
The public limited liability company must first publish its prospects inviting the public to subscribe for shares. This may be a publication in the newspaper or in another public media. The prospectus will contain information on the assets, liabilities and profit levels of the company.
7. Certificate of Trading
Once the public limited liability company has collected the total amount of share capital stated in the memorandum, the company will then be issued with a Certificate of Trading. This will allow the company to start trading.