Importance of English Language
A joint-stock company is a business entity which is owned by shareholders. Each shareholder owns the portion of the company in proportion to his or her ownership of the company’s shares (certificates of ownership). This allows for the unequal ownership of a business with some shareholders owning a larger proportion of a company than others. Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.
A voluntary organization which is an artificial person created by law, having limited liability of its members and a perpetual succession with its capital divided into transferable shares and which has a common seal. A joint stock company is a voluntary association formed by people to carry on a certain business for profit. People contribute their capital in the forms of shares in the company. Company works in its own name under a common seal. It has separate entity from its members. Characteristics Of Joint Stock Company:
To understand the concept of joint stock (private and public limited) companies, consider the following characteristics: Legal formation: No single individual or a group of individuals can start a business and call it a joint stock company. A joint stock company can come into existence only when it has been registered after completion of all the legal formalities required by the Indian Companies Act, 1984 A company is a voluntary association of persons joining hands with a common motive. For the private company formation, there must be at least two members maximum limit is fifty.
For the public company formation, minimum number of members is seven and there is no restriction over its maximum number. Artificial person: Just like an individual takes birth, grows, enters into relationships and dies, a joint stock company takes birth, grows, enters into relationships and dies. However, it is called an artificial person as it’s birth, existence and death are regulated by law. i)a company is lifeless but it has a privilege of human being. ii)A company can sue or can be sued in its own name. iii)A company can own and hold property in its own name. v)A company can enforce the contractual rights against others. v)A company can enter into contracts. Separate legal entity: Being an artificial person, a joint stock company has its own separate existence independent of it’s investors. This means that a joint stock company can own property, enter into contracts and conduct any lawful business in it’s “own” name. It can sue and can be sued by others in the court of law. The shareholders are “not” the owners of the property owned by the company. Also, the shareholders cannot be held responsible for any of the acts of the company.
The two are two persons in the eye of law. Common seal: A joint stock company has a “seal”, which is used while dealing with others or entering into contracts with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company. Any document, on which the company’s seal is put and is duly signed by any official of the company, becomes binding on the company. For example, a purchase manager may enter into a contract for buying raw materials from a supplier. Once the contract paper is sealed and signed by the purchase manager, it becomes valid.
The purchase manager may leave the company or may be removed from his job or may have taken a wrong decision, yet, the contract is valid till a new contract is made or the existing contract expires. Perpetual existence: A joint stock company continues to exist as long as it fulfills the requirements of law. It is not affected by the death, lunacy, insolvency or retirement of any of it’s investors. For example, in case of a private limited company having four members, if all of them die in an accident, the company will “not” be closed. It will continue to exist.
The shares of the company will be transferred to the legal heirs of the members. Limited liability: In a joint stock company, the liability of a member is limited to the amount he has invested. While repaying debts, for example, if a person has invested only Rs. 10,000 then only this amount that he has invested can be used for the payment of debts. That is, even if there is liquidation of the company, the personal property of the investor can not be used to pay the debts and he will lose his investment worth Rs. 10,000. Democratic management: Joint stock companies have democratic management and control.
Since in joint stock companies there are thousands and thousands of investors, all of them cannot participate in the affairs of management of the company. Normally, the investors elect representatives from among themselves known as ‘Directors’ to manage the affairs of the company. Advantages of Joint Stock Company Large financial resources: A joint stock company is able to collect a large amount of capital through contributions from a large number of people. In a public limited company, shares can be offered to the general public to raise capital.
The companies can also accept deposits from the public and issue debentures to raise funds. Greater permanency: The life of a joint stock company compared to the partnership is very stable . if the business remains well managed ,it can live on indefinitely . the share holders may come or go ,the life of the company like an ‘ artificial person’is least affected by these changes Limited liability: In case of a joint stock company, the liability of it’s members is limited to the value of shares held by them. Private property of members cannot be confiscated for overcoming the debts of the company.
This advantage attracts many people to invest their savings in the company and it encourages the company to take more risks. Professional management: Management of a company is in the hands of the directors, who are elected democratically by the members or shareholders. These directors are known as the “Board of Directors”. They manage the affairs of the company and are accountable to all the investors. So, the investors elect capable persons who have sound financial, legal and business knowledge to the board so that they can manage the company efficiently. Large-scale production:
Since there is an availability of large financial resources and technical expertise, it is possible for the companies to have “large-scale” production. This enables the company to produce more efficiently and at a lower cost. Research and development: Only in joint stock company form of business, it is possible to invest a lot of money on research and development so that new design, better quality products, etc. can be achieved. Huge capital: Capital is increased in joint stock company as compared to partnership and sole proprietorship Higher profit: Due to availability of latge capital ,the company installs expensive and ptodate machinery thus there is greater production of goods, the cost is reduced and the firm can earn higher profit ti producing better quality of goods. Spread of risk : In a company form of organization, the risk is distributed among the large number of shareholders. Bold management : This type of organization can undertake big risks which sole proprietorship or partnership form of organization cannot do. Disadvantages of Joint Stock Company Difficult to form: The formation & registration of joint stock company involves a long and complicated procedure.
A number of legal documents and formalities have to be completed before a company can start business. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. Because of all this, the cost of formation of a company is very high. Excessive government control: Joint stock companies are regulated by government through the Companies Act and other economic legislations. Especially, public limited companies are required to complete various legal formalities as provided in the Companies Act and other legislations. Non-compliance with these causes a heavy penalty.
This affects the smooth functioning of the companies. Delay in policy decisions: Generally policy decisions are taken at the “Board of Directors” meetings of the company. Further, the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions. Double taxation: The joint stock company is subject to double taxation . it pays tax on its earnings to the government . the tax is also paid by the share holders on the receipt of dividend from the company. Exploitation of shareholders: The shareholders of a company mostly remain unknown to one another . hey seldom attend the annual meetings. Favouritism and nepotism: The directors ,managers etc employ their near and dear ones at the key positions of the company who may or may not be fit for the assigned responsibilities Stock exchange speculation: The joint stock company facilitates speculation in shares at stock exchanges. The reckless speculation is harful to the interes of the share holders and for sound investment . Lack of secrecy: The management has to make an annual report regarding sales , net profits’ assets liabilities etc of the company . the competitors thus gain full knowledge of strong and weak points of the company . ,