LEGAL VIEWPOINT: FOUNDERS \ PROMOTERS – By Dr AbdelGadir Warsama Ghalib, Legal Counsel, Bahrain

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Dr AbdelGadir Warsama Ghalib, Legal Counsel

The founders are the people who find the idea of starting a company, they are the initiators. Founders apply to the Ministry for incorporating a new company they are ready to start. A register shall be held at the Ministry to register applications for incorporating new companies. The company preliminary Memorandum and Articles of Association shall be attached, with a statement including the name of the founder’s agent, his profession and address. Other attachments include an evaluation of in-kind shares, the company name, info if there is a corporate person among the founders… etc.

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Company preliminary contract shall include, name of the company, head office, objectives, names of founders, company authorized, issued and paid-up capital, term of the company, a statement on in-kind share, an estimate of the incorporation expenses.

Upon submitting applications by founders, the Ministry shall ascertain that the company has been incorporated on legal and sound basis. Ministry may request additional details and documents whenever necessary. It may also request amendments to the articles of association to make them consistent with the law and the standard model form.

Ministry shall decide on the application within thirty days. If the period lapses without a decision, the application shall be deemed rejected with the right to appeal to the Court within thirty days and the Court decision shall be final. In such instances, Founders shall not apply for new incorporation before removing rejection reasons or lapse of six months from the date of the Court decision.

After approving the Memorandum and Articles of Association, it shall be notarized and returned to the Ministry to issue certificate of incorporation, which shall be published in the Official Gazette at the expense of the company and a copy to the founders. The company shall have a corporate entity from the date of publication of the incorporation certificate in the Official Gazette.

The issuance of incorporation and certification confirms that the Memorandum and Articles of Association and other particulars contained in the application are in order.

Founders shall begin shares subscription after publication of the incorporation order in the Official Gazette. The founders, as provided in the law, shall subscribe shares representing certain percentage of the capital. However, founders may be authorized, subject to the approval of the Council of Ministers, to subscribe for more percentage of the company capital.

Founders shall submit to the Ministry, before inviting the public to subscribe, a bank certificate proving they have subscribed for the company shares within the limits of the law, and they have deposited, in the company account, an amount equal to the percentage required to be paid by the public for each share upon subscription as provided in the articles of association. Such amount shall be mentioned in the prospectus. The bank certificate shall be accompanied with the subscription invitation prepared by the founders in accordance with the provisions of the law. Upon completion of the above, the Ministry shall authorize publication of the prospectus in the local daily newspapers.

Founders shall issue a prospectus, approved by the Ministry and the Stock Exchange, calling for public subscription including the particulars specified in the regulations. Prospectus shall be published in local newspapers at the expense of the company at least five days before subscription commences. Founders who signed the application for company incorporation shall sign the prospectus and be jointly liable for the accuracy of the particulars contained therein.

Subscription shall be undertaken at one or more of the commercial banks or at one of its branches or representatives abroad or through securities companies or other parties approved by the Ministry.

Installments due upon subscription shall be paid at the bank and the bank shall record such payments in a special account to be opened in the name of the company. Subscription shall remain open for a period of not less than ten days and not exceeding three months. Subscription shall not close, in case of covering subscription at any period, before the lapse of five days from the date of publication of a notice that subscription for shares has been fully completed, provided that the minimum period of subscription has lapsed.

Subscription shall be effected by a note indicating the number of shares subscribed for, the subscriber’s acceptance of the company’s Memorandum and Articles of Association, his selected domicile, and any other details that may be deemed necessary. The subscriber or his deputy shall sign the subscription document. The subscriber shall submit the note to the bank and shall pay the installments due against a receipt signed by the bank indicating the name of the subscriber, his selected domicile, nationality, date of subscription, number of subscribed shares and paid installments. Subscription shall be deemed final upon receiving such receipt. The subscriber shall not cancel his subscription, without prejudice to certain provisions in the law. All such procedure and steps are to be followed very closely by the founders.

As we can see, the role of founders is very essential in promoting the company to the public. If the founders, are known in the market for their professionalism, honesty and good reputation, this will help in attracting the public to subscribe in the new company and join forces.. So, before believing in any prospectus, you are advised to learn more about the founders behind the scene. Wise assessment is needed from your side before adding your hand and going along with them. It worth thinking and rethinking about founders, as they represent the  initial mind of the new company.