CORPORATE FORM OF ORGANIZATION


 The gradual growth of trade, commerce and industry during twentieth century, the

size of business activities had grown up, and the sole proprietorship and the

partnership forms of organizations did not supply all the capital needed. Therefore,

a new form of business organization came into existence where in the public was

invited to contribute capital. Such an organization is known as a Joint Stock

Company or simply a company or alternatively named as a corporation. Such joint

stock companies are established in Pakistan under Companies Act, 2017.

A Joint Stock Company or Corporation is a fictitious or artificial legal person

existing in the eyes of law. This legal person (Company) once created is distinct

from its owners, stockholders, shareholders or members. The Company can own

property, sue and be sued and generally carry on activities by its own name and

title through its officers and agents. Being a creature of statute, the scope of its

activities is dependent upon its memorandum of association and any activity

beyond its scope would be judged as invalid and ultra vires. The Companies are

thus governed by its relevant law under which it was constituted and registered.

There are two major classifications of joint stock companies. One is a private

company whose members are limited and cannot offer its shares to public for sale.

The second type is a public company whose members are unlimited and can offer

its shares to public for sale. Such shares/stocks once issued are usually traded on

the stock exchanges of the country.

BASICS OF CAPITAL STOCK:

The Capital stock denotes the contribution of funds made by shareholders/

stockholders in the company through purchase of shares/stocks of the joint stock

company. This is the main source of the company through which funds are

collected for conduct of business. The capital stock of a company is classified into

accounting record with different nomenclatures as deliberated below:

a) Authorized Capital

This is the total amount of capital divided into different classifications, duly

approved by the Controller of Capital Issue of Securities and Exchange

Commission of Pakistan, on the request of the Company after depositing

necessary fee. This also matches with the amount of capital authorized and

indicated in the memorandum of association of the company. The company

has the power to issue shares up to this authorized amount of capital. The

authorized capital is divided into shares of fixed amount like Rs. 10, Rs. 50

or Rs. 100 each share or. The amount of authorized capital with

classifications is indicated in the equity section of the balance sheet as

memorandum information. No accounting entry is passed for the authorized

capital.

b) Issued Capital

This represents the number of shares which have been offered to public

through issuance of prospectus or otherwise in the shape of cash or some

other considerations of assets or services rendered. The issuance of shares

can also be arranged through brokerage houses i.e. underwriters also acquire

all or major portion of shares and then sell such shares taking all gains or

losses from its resale.

c) Subscribed Capital

It is that part of issued capital which was subscribed by the potential

purchasers through their requests expressing intention of purchase to which

the company agreed. The subscription may be over or under. In case of over

subscription some modality is developed to maintain some rationale for

selection of issuance of shares. In case of under subscription usually the

shares are issued as requested by purchasers in all.

d) Called up Capital

The amount of money which was called up from the subscribers of shares

for making payment to the company.

e) Paid up Capital

The paid up capital is the amount of called up capital that has actually been

paid up by the subscribers/stockholders to the company.

f) Par Value of Stock

The par value of Stock denotes the amount as indicated on the face of the

share certificate and has been issued at that particular amount to the

stockholders. For instance, the share of Rs. 100 issued at Rs. 100 each is its

par value.

g) Market Value of Stock

The market value of the stock is the price at which the shares can be

purchased and sold each time. This value fluctuates from time to time in the

market at stock exchanges. The market value of stock depends upon the

amount of dividends growth and other economic factors in the country

which have influence over the corporate affairs.

h) No – par Value Stock

No par value stock is not assigned any par value by the company and its

memorandum of association. Such shares can be issued at any price without

the possibility of a minimum legal capital deficiency (discount factor).

i) Stated Value Stock

The stated value stock is no-par Stock to which the directors assign a

“stated” value per share. The stated value per share becomes the minimum

legal capital per share.

The shares of the company may be classified into ordinary (common) and

Preferred stocks to which Companies Act 2017 permits.

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