9 Account -- Company and Its Formation

What do you mean by prospectus? Mention any five contents to be stated in prospectus.

1 Answers

A prospectus is a written invitation made to the public to subscribe the shares and any other securities of a company.

The important contents to be included in the prospectus are as follows:

1.The name , address,nature and objectives of the company.

2.The names, addresses and occupations of the directors, managing directors or managers,etc.

3. Dates of opening and closing subscription list.

4. Capital structure of the company as authorised,issued , subscribed and paid up share.

5. Terms of payment,modes of payment,size of the present issue, share issue at discount or premium, etc.

6. Details about underwriting, brokerage and other commissions.

7. Projected financial statements for at least three years.

What do you mean by private company? Write any five privileges of private companies.

A company is said to be a private company if it restricts the right of its members to freely transfer shares,limit the number of its members one to one hundred one and does not invite public to subscribe for shares or debentures by issuing prospectus.

Privileges of private company

a. Formation by a a single person: A private limited company may be formed even by a single person.

B. Commencement of business:It can start it's business immediately after getting certificate of incorporation.

C. No...

What do you mean by company promoters? Write the functions of company promoters.

The person or a group of persons who take necessary steps to incorporate a company are called a company promoters.

The functions of company promoters are:

1. Conceive the idea of forming a business.

2. Analyse profitability and feasibility of the idea.

3. Investigate the workability of the idea by consulting experts.

4. Decide the name and the location of the company and also the amount and form of its share capital.

5. Prepare the Memorandum of Association (MoA), Article of Association (AoA),...

What is preference shares? State the features of preference shares.

The share, which carries preferential rights on dividend and refund of capital on case of liquidation of company,is called preference share.

It's features are:

1. Dividend at a fixed amount is given to preference shareholders before any dividend to equity share.

2. Redemption of preference shares capital before the redemption of equity share capital at the time of liquidation of the company .

3.Preference shareholders do not have right to participate in the management of the company.

Define share capital. Differentiate between issued capital and subscribed capital.

The capital contributedby shareholders of a company for its business operation is known as share capital.

Issued capital	Subscribed capital
Issued capital is a part of authorized capital which is offered to the public for subscription, including shares offered to the vendor for consideration other than cash .	Subscribed capital is the part of issued capital, which is subscribed by the public.
Issued share capital is the value of shares actually held by investors.	Subscribed share capital...

Write difference between preference shares and equity shares.

The difference between preference shares and equity share are as follows:

Bases of difference	Preference shares	Equity shares
Rate of dividend	The rate of dividend on preference shares is fixed.	The rate of dividend on equity shares is not fixed.
Arrears of dividend	Holders of cumulative preference shares can get the arrears of past dividend.	Equity shareholders cannot get the arrears of past dividends.
Redemption	Preference shares can be redeemed as provided by the article and terms...

Define ordinary shares.

The share, which does not carry any preferential or special rights on dividend and refund on capital on liquidation of company is called ordinary share.

Write in brief about Memorandum of Association.

The first and foremost document of joint stock company is Memorandum of Association. It is the basis of incorporation; hence a company cannot register without it . It sets out the constitution of a company and foundation on which the structure of the company is based. Memorandum of association is the charter or constitution of the company as it lays down the objectives of the company precisely and clearly,defines the scope of its operations and it's relations with the investors and outside...

Write in brief about Article of Association.

Article of association is the document of a company that contains detailed rules and regulations that governs the operation of a company.

The following are the main contents of the Article of Association:

1. Procedure of convening the general meeting of the company and the notice to be given for such meeting.

2. Procedure of general meeting.

3. Number of directors, provision of alternate director,if any , and tenure of directors.

4. Power and duties of the board of directors and the managing...

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