Introduction - Joint Stock Company

 JOINT STOCK COMPANY  COMPANY  A Joint Stock Company or simply a company is a voluntary association of  persons generally formed for undertaking some big business activity. It is established by law and can be dissolved by law. law. The company has a separate legal existence so that even if its members die the company remains in existence. Its members contribute money for some common purpose. The money so contributed constitutes the capital of the company. The capital of  the company is divided into small units called shares. Since members invest their money by purchasing the shares of the company they are known as shareholders and the capital of the company is known as share capital. According to !aney  “A company is an incorporated association hich is an arti!cial person created "or #y la$ ha%in& a separate entity$ ith a perpetual succession and a common seal.'

C(A)ACT*)ISTICS O+ JOINT STOCK COMPANY  Arti!ciall Person, A $oint stock company is an arti%cial person in the "a# Arti!cia sense that it is created by law and does not possess physical attributes of a natural person. It cannot eat or walk smile read or write. !owever it has a legal status like a natural person. +ormation,  The formation of a $oint stock company is time consuming "b# +ormation, and it involves preparation of several documents and compliance of several legal legal re&ui re&uire remen ments ts befor before e it starts starts its operat operation ion.. A compan company y comes comes into into existence only when it is registered registered under the Companies Act. Separate te -e&al -e&al *ntity *ntity,, 'eing an arti%cial person a company exists "c# Separa independent of its members. It can make contracts purchase and sell things employ people and conduct any lawful business in its own name. It can sue and and can be su sued ed in the cour courtt of law. aw. A sh shar are ehol holder der canno annott be hel held responsible for the acts of the company. Common Seal, Since a company "d# Common company has no physical existence existence it must act through through its 'oard 'oard of (irector (irectors. s. 'ut all contracts contracts entered entered by them shall have to be under the common seal of the company. This common seal is the o)cial signature of the company. Any document with the common seal and duly signed by an o)cer of the company is binding on the company. company. Perpet etua uall * *is iste tenc nce, e,  The Company en$oys continuous existence. "e# Perp (eath lunacy insolvency or retirement of the members does not a*ect the

life of the company. It goes on forever. Since it is created by law it can only be dissolved by law.

"f# -imited -ia#ility o" Mem#ers,  The company form of business is able to attract large number of people to invest their money in shares because it o*ers them the facility of limited risk and liability. The liability of a member is limited to the extent of the amount of shares he holds. In other words a shareholder can be held liable only to the extent of the face value of the shares he holds and if he has already paid it which is normally the case he cannot be asked to pay any further amount. +or example if ,A- holds one share of /. 0 and has paid 122 bai3a on that share his liability would be limited only upto 422 bai3a. "g# Trans"era#ility o" Shares,  The members of the company "5ublic company# are free to transfer the shares held by them to others as and when they like. They do not need the consent of other shareholders to transfer their shares. "h# Mem#ership,  To form a $oint stock company a minimum of two members are re&uired in case it is private limited company and seven members in case of public limited company. The maximum limit is %fty incase of private limited company. There is no maximum limit of membership for a public limited company. "i# /emocratic Mana&ement,  6ou know that people of di*erent categories and areas contribute towards the capital of a company. So it is not possible for them to look after the day7to7day management of the company. They may take part in deciding the general policies of the company but the day7to7 day a*airs of the company are managed by their elected representatives called (irectors.

M*)ITS O+ JOINT STOCK COMPANY  A company form of business organi3ation is very popular for undertaking big business. It has the following merits 7 "a# -ar&e )esources, A $oint stock company can raise large %nancial resources because of its large number of members and it can raise funds through debentures public deposits loans from %nancial institutions without much di)culty.

"b# -imited -ia#ility, In a $oint stock company the liability of its members is limited to the extent of shares held by them. This attracts a large number of  small investors to invest in the company. It helps the company to raise huge capital. 'ecause of limited liability a company is also able to take larger risks. This helps in making investment decisions easily. "c# Continuity o" *istence, A company is an arti%cial person created by law and possesses independent legal status. It is not a*ected by the death insolvency etc. of its members. Thus it has a perpetual existence. "d# 0ene!ts o" -ar&e1scale Operation,  The $oint stock company is the only form of business organi3ation which can provide capital for large7scale operations. It results in large7scale production conse&uently leading to increase in e)ciency and reduction in the cost of operation. It further opens the scope for expansion. "e# -i2uidity,  The transferability of shares acts as an added incentive to investors as the shares of a public company can be traded easily in the stock exchange. The public can buy shares when they have money to invest and convert shares into cash when they need money. "f# Pro"essional Mana&ement, Companies because of the complex nature of their activities and large volume of business re&uire professional managers at every level of organi3ation. 'ecause of the si3e of their business and the %nancial strength they can a*ord to appoint such managers. This leads to e)ciency in management of their a*airs. "g# )esearch and /e%elopment, A company generally invests a lot of  money on research and development for improved processes of production designing and innovating new products improving &uality of product new ways of training its sta* etc. "h# Ta 0ene!ts, Although the companies are re&uired to pay tax at a high rate in e*ect their tax burden is low as they en$oy many tax exemptions under Income Tax Act.

-IMITATIONS O+ JOINT STOCK COMPANY  Inspite of several merits of a $oint stock company as discussed above this form of business organisation also su*ers from many limitations. The important limitations are given below8

"a# /i3cult to +orm,  The formation of a company involves compliance with a number of legal formalities under the companies Act and compliance with several other rules and regulations framed by the government from time to time. "b# Control #y a 4roup,  Theoretically a company is supposed to be managed by trained and experienced (irectors. 'ut practically this is not so in many cases. 9ost of the companies are managed by the (irectors belonging to the same family. Since most of the shareholders are widely dispersed they have indi*erent attitude towards the management of the company. The shareholders holding ma$ority of the shares take all decisions on behalf of the company. Thus the democratic virtues of a company do not really exist in practice. "c# *cessi%e 4o%ernment Control, A company is expected to comply with the provisions of several Acts. :on7compliance with these invites heavy penalty. This a*ects the smooth functioning of the companies. "d# /elay in /ecision Ma5in&, A company has to ful%ll certain procedural formalities before making certain decisions as they re&uire the approval of  the 'oard of (irectors and ;or the