JOINT STOCK COMPANY

1. JOINT STOCK COMPANY

2. 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 money’s worth to a common stock.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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 valuethe 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.

9. 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

10. 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.