JOINT STOCK COMPANY

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JOINT STOCK COMPANY
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INTRODUCTION

• The limitations of sole-proprietorship
  and partnership forms of ownership gave birth to
  joint stock company form of organisation. Two
  important limitations of earlier form of
  organisation were inadequacy of funds and
  unlimited liability. The earlier form of
  organisation could not meet the increasing demand
  for funds of organisation. The other limitation
  which hampered the growth of business was the
  unlimited liability of owners.
• Joint stock company was first started in ITALY in
  THIRTEENTH century. During 17th and 18th
  centuries, joint stock companies were formed in
  ENGLAND under ROYAL CHARTER or ACTS OF
  PARLIAMENT.
• DEFINITION-
• A company is a voluntary association of many
  individuals for profit having limited liability
  and contribute money or moneys worth to a common
  stock.

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CHARACTERISTICS OF JOINT STOCK COMPANY

• ASSOCIATION OF PERSONS- A company is an
  association of persons joining hands with a
  common motive. A private limited company must
  have at least two persons and public limited
  company must have at least seven members to get
  it registered. Furthermore, the number of
  shareholders should not exceed 50 in private
  companies but there is no maximum limit in a
  public limited company.
• INDEPENDENT LEGAL ENTITY- The company is created
  under law. It has separate legal entity apart
  from its members. A company acts independently of
  its members. The company is not bound by the acts
  of its members. The company can sue and be sued
  in its own name.
• LIMITED LIABILITY- The liability of its
  shareholders is limited to the value of shares
  they have purchased. In case the company incurrs
  huge liabilities, the shareholders can only be
  called upon to pay the unpaid balance on their
  shares.
• COMMON SEAL- A company being an artificial
  person cannot put its signatures. The law
  requires every company to have a seal and get its
  name engraved on it. The seal of the company is
  affixed on all important documents and contracts
  as a token of signature.
• TRANSFERABILITY OF SHARES- The shares of the
  company can be transferred by its members. Under
  ARTICLES OF ASSOCIATION, the company can put
  certain restrictions on the transfer of shares
  but it cannot altogether stop it.

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• SEPARATION OF OWNERSHIP AND MANAGEMENT- The
  shareholders of a company are widely scattered. A
  shareholder may like to invest money but may not
  be interested in its management. The companies
  are managed by the board of directors.
• PERPETUAL EXISTENCE- The company has a permanent
  existence. The shareholders may come or may go
  but the company will go on forever. The
  continuity of the company is not affected by
  death, lunacy or insolvency of its shareholders.
• CORPORATE FINANCE- A joint stock company,
  generally, raises large amounts of funds. The is
  divided into small shares of domination. A large
  number of persons purchase shares and contribute
  to the capital of the company.
• CENTRALISED AND DELEGATED MANAGEMENT- A joint
  stock company is an autonomous and self governed
  body. The shareholders being large in number
  cannot look after the day-to-day activities of
  the company. They elect board of directors in
  general body meeting for managing the company.
  All policies of the company are decided by a
  majority vote. All decisions are taken in a
  democratic way.
• PUBLICATION OF ACCOUNTS- A joint stock company
  is required to file annual statements with the
  registrar of companies at the end of a financial
  year. They are available for inspection in the
  office.

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KINDS OF COMPANIES

• ACCORDING TO INCORPORATION
• The companies may be divided into three
  categories according to incorporation.
• CHARTERED COMPANIES- These type of companies
  are incorporated under ROYAL CHARTER by the king
  or HEAD OF THE STATE. Under the charter, certain
  exclusive rights and privileges are granted to
  the company for undertaking certain commercial
  activities. If the company violates the rules,
  the head of the state can close such companies.
• STATUTORY COMPANIES- These companies are formed
  under special act of parliament or of a state
  legislature. These companies may or may not use
  the word limited. The EXAMPLES of such
  companies are RESERVE BANK OF INDIA, THE
  INDUSTRIAL FINANCE CORPORATION OF INDIA, STATE
  TRADING CORPORATION OF INDIA, etc.
• REGISTERED COMPANIES- These are the companies
  formed and registered under the provisions of the
  companies act. Most of the companies in india are
  registered under the COMPANIES ACT 1956. these
  companies may be limited by shares, limited by
  guarantee or unlimited companies.

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• ACCORDING TO LIABILITY
• According to liability, the companies
  may be classified into three categories.
• COMPANIES LIMITED BY SHARES- The companies
  limited by shares have a share capital. The
  capital is divided into shares. The shareholders
  are not liable to pay anything more than the
  value of shares held by them, whatever be the
  liabilities of the company.
• COMPANIES LIMITED BY GUARANTEE- These companies
  are also formed under the companies act with a
  stipulation in the memorandum clause that members
  are guaranteed to pay a certain amount of money
  in case of its winding up. The amount which
  members undertake to pay is called the guarantee
  money.
• UNLIMITED COMPANIES- The companies registered
  without limiting the liability of members to the
  value of shares are called unlimited companies.
  All members are liable to meet the liabilities of
  the company to an unlimited extent.

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• ACCORDING TO TRANSFERABILITY OF SHARES-
• PRIVATE COMPANY- A private company can be formed
  with the association of at least two members but
  the maximum number of shareholders cannot exceed
  fifty. A private company restricts by its
  articles, a) the right of members to transfer its
  shares, b) limits the number of its members to
  fifty, and c) prohibits any invitation to the
  public to subscribe to is shares and debentures.
• EXEMPTIONS AND PRIVILEGES OF PRIVATE
  COMPANY
• A private company can be started with just two
  members whereas a public company requires at
  least seven members.
• A private company is not required to file a
  prospectus or a statement in lieu of prospectus
  with the registrar of companies.
• There is no restriction of minimum subscription
  as in the case of public company. It can directly
  allot the shares. It can work with just two
  directors.
• A private company is not required to hold a
  statutory meeting and filing a statutory report.
• 2. PUBLIC COMPANIES- Public company means
  that public at large is interested in those
  companies. A minimum of seven members are
  required to constitute a public company and to
  get it registered. There is no restriction on the
  maximum number of members. Public companies are
  required to issue a prospectus for inviting
  people to purchase their shares. A public company
  can start work only after getting CERTIFICATE OF
  COMMENCEMENT from the REGISTRAR OF COMPANIES.
  The shareholders are free to sell their shares in
  the market.

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MERITS OF JOINT STOCK COMPANY

• ACCUMULATION OF LARGE RESOURCES - a company can
  collect large sum of money from large number of
  share holder. need for more fund arise, the
  number of shareholder can be increased .
• LIMITED LIABILITY-The liability of members in a
  company is limited to the nominal value
  the shares
• CONTINUITY IN EXISTENCE-The member of a company
  may go on changing from time
• to time but that does not affect the
  continuity of a company. The death or insolvency
  of members does not in any way affect the
  corporate existence of company.
• EFFICIENT MANAGEMENT - In the company form of
  organization, ownership is separate
• from management its enables the company to
  point expert and qualified person for managing
  various business function.
• ECONOMIES OF LARGE SCALE PRODUCTION-The
  availability of large resources, the
• company can organize production on a big
  scale .The increase in scale and size of
  business bill result in economics in production,
  purchase , marketing and management , etc.

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• 6. TRANSFERABILITY OF SHARES- A share holder
  can dispose of his share at
• any time when the market condition are
  favorable or he is in need of money, the
• facility of transferring shares encourages
  many person to invest.
• DIFFUSED RISK - In company form of organization,
  the number of contributors is large so risk is
  shared by a large number of persons.
• 8. DEMOCRATIC SET UP - Every individual has
  an opportunity to become a
• shareholder. Secondly, the board of
  directors is elected by the members. So
• members have a say indicating the policies
  of the company. The Company form of
• organisation is democratic from ownership
  and management side.
• 9. SOCIAL BENEFITS - The company form of
  organisation mobilizes scattered
• saving of the community. These saving can be
  better used for productive purposes.
• Large scale production enjoy a number of
  economics enabling low cost of
• production

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DEMERITS OF JOINT STOCK COMPANY

• 1.DIFFICULTY IN FORMATION- There is no. of
  stages is involved in company promotion. It is
  both expensive and risky.
• 2.SEPARATION OF OWNERSHIP AND MANAGEMENT-.The
  ownership and management of a public company is
  in different hands . The management may indulge
  in speculative business activities.
• 3.EVILS OF FACTORY SYSTEM- The stock company
  are attribute the evils of factory system like
  insanitation ,air pollution ,congestion of
  cities.
• 4.SPECULATION IN SHARES- The joint stock company
  facilitate speculation in the shares at stock
  exchanges.
• 5.FRADULENT MANAGEMENT- The promoters and
  director may indulge in fraudulent practices due
  to not invested much in the company.
• 6.LACK OF SECRECY- Every thing is discussed in
  the meeting of board of directors
• 7.DELAY IN DECISION MAKING- There is no single
  individual can make a policy decision.