---
title: "Joint stock company and its formation"
subject: "Organization and Management"
chapter: 4
key: "semester_7/organization_and_management:joint-stock-formation"
source: https://www.bctengineer.com/q/semester_7/organization_and_management/joint-stock-formation
site: BCT Engineering
---

# Joint stock company and its formation

Organization and Management · Chapter 4: Forms of Ownership

- Asked in: 2070 Chaitra, 3+5 marks; year not given
- Video: [Formation of a Joint Stock Company class 11](https://www.youtube.com/watch?v=jRgGRUi6ObA) — Dr. Jayasri 
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/organization_and_management/joint-stock-formation
- Whole chapter: https://www.bctengineer.com/md/semester_7/organization_and_management/chapter-4

## Question

What is meant by 'Joint Stock Company'? Describe the procedure for forming a 'Joint Stock Company'.

## Short answer

A joint stock company is a separate legal entity with capital divided into shares, governed by the Companies Act 2063 in Nepal. Formation involves promotion, name approval, preparing MoA/AoA, registration with OCR to get incorporation certificate, and for public companies, issuing shares via SEBON prospectus and listing.

## Answer

#### Joint Stock Company
A joint stock company is an artificial legal person, formed by law, whose capital is divided into small units called shares, owned by its shareholders. It has a separate legal identity, perpetual succession and limited liability. In Nepal it is governed by the **Companies Act, 2063 (2006)** and registered with the Office of the Company Registrar (OCR). Types: private company (1 to 101 shareholders, shares not offered to the public) and public company (minimum 7 shareholders, shares can be offered to the public). Examples: Nepal Telecom, Nabil Bank, Himalayan Distillery.

#### Procedure for forming a company
1. **Promotion:** Promoters get the idea, assess feasibility, and arrange initial finance and members.
2. **Name approval:** Apply to the OCR for the approval of a unique name.
3. **Prepare documents:** The Memorandum of Association (MoA: name, objectives, capital, registered office) and the Articles of Association (AoA: internal rules). Also details of directors and shareholders, and their consent.
4. **Registration:** Submit the application with the documents and fee to the OCR. If satisfied, the registrar issues the **Certificate of Incorporation**; the company becomes a legal entity. A private company can begin business after this.
5. **Raising capital (public company):** Prepare a prospectus, get approval of the Securities Board of Nepal (SEBON), and issue shares to the public (IPO) through licensed issue managers.
6. **Share allotment and listing:** Allot shares, and list on NEPSE for trading.
7. **Other registrations:** PAN/VAT with the Inland Revenue Department, industry registration and other licences. Hold the first meeting of directors and appoint auditors.

```text
Promotion -> Name -> MoA/AoA -> Registration
          -> (Prospectus, SEBON) -> Share issue -> Business
```

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. A joint stock company is:
   A. An unregistered partnership
   B. An artificial legal person with capital divided into shares, perpetual succession and limited liability
   C. A government department
   D. A single-owner firm
   Answer: B. Core features. (Key point: Definition)

2. What makes the company a legal entity?
   A. Name approval
   B. The prospectus
   C. The Certificate of Incorporation issued by the registrar
   D. NEPSE listing
   Answer: C. Registration gives legal status. (Key point: Certificate)

3. Extra step for a public company:
   A. Nothing extra
   B. Only a name
   C. PAN only
   D. Prospectus with SEBON approval before issuing shares
   Answer: D. SEBON approves share issue. (Key point: Public company)

4. The Memorandum of Association contains:
   A. Name, objectives, capital and registered office
   B. Internal rules
   C. Dividends
   D. Tax details
   Answer: A. AoA holds internal rules. (Key point: MoA)

## Related in Organization and Management

- [Joint stock company advantages and limitations](https://www.bctengineer.com/question.md?key=semester_7%2Forganization_and_management%3Ajoint-stock-advantages) — Organization and Management, chapter 4