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.
• ASSOCIATION OF PERSONS:- A company is an association of persons
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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.
• 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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ACCORDING TO INCORPORATION=
The companies may be divided into three categories according to incorporation.
1.
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.
2.
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.
3.
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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3.
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.
B.
C.
D.
2.
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.
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.
MERITS OF JOINT STOCK COMPANY
1. 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 .
2. LIMITED LIABILITY:-The liability of members in a company is limited to the nominal value
the shares
3. 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.
4. 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.
5. 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.
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.
7. 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
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.