By Dr AbdelGadir Warsama, Legal Counsel
The first idea to establish a public or private joint stock company, as a matter of fact, originates or starts in the mind of one person or a group of persons whom we could call or deem as pioneers or entrepreneurs in that particular venture project. This is because they are the first to think about starting or setting a new venture through a joint stock company.
Legally speaking, this group constitutes or lays down the foundation for the new venture, and this is why they are called, the founders of the company, also called as the promoters of the company. The presence of the founders\promoters, for establishing a joint stock company is mandatory and we could say it is a must according to the Company Law.
According to the law, a person or whoever intends to take positive step to establish a joint stock company shall sign the Initial Memorandum of Understanding (MoU) and the Articles of Association (AoA). The signature signals the interest and shows the commitment of the signatory as a founder member in the company. The Company Law, in certain countries, requires the availability of certain number of founders for the initial licensing of the Joint Stock Company and its incorporation. I believe that this minimum number is required to ensure the commitment of reasonable number of certain persons who are eager and interested to put their heads and hands together to achieve their joint goal. However, if it is difficult to have the required number of founders as required by the law, the competent authority could be approached to reduce the number.
The number of the founders, in some cases, is very big and it is neither possible nor practical for all of them to work together to incorporate the company and therefore they are allowed by law to form a “committee” from themselves. The purpose for this committee should be to undertake and follow up the incorporation process. This committee, normally, shall be composed of three to five members and they should be given the legal authority to represent all founders and to take all steps to incorporate the company on behalf of the founders.
An interesting legal question arises here regarding the legality of the actions taken by the founders. Legally speaking, the company (under the process of incorporation) has the legal entity only to the extent necessary for the incorporation. In other words, the company and the founders have limited legal authority and this authority is confined to the steps solely required for the incorporation process only. If the steps or any step taken by the founders is not certainly required for this particular purpose, then, this step or action shall be deemed “ultra vires” and accordingly it shall fall outside the legal responsibility of the company.
It has been observed, in many cases, that some founders have exceeded their powers and limits and they performed some actions, which are not required for the incorporation of the company. In such cases, the founders are personally responsible and they should be accountable for what they have done.
Legally speaking, the founders are not free nor allowed to do anything or everything according to their wishes. They are guided at this stage by the law and the necessary directives issued, from time to time, by the competent authority. All actions that are legally required for the process of incorporation of the company are binding on the company after its incorporation, and by all means, the founders are not personally responsible.
This is a call for all founders to be aware and understand their role and to perform their duties in a neat and legally acceptable manner. Ultimately, this attitude will help both ends, that is to say the founders on one hand and the company on the other hand.