Joint Stock Company (Cntd…)

Features of a Joint Stock Company

1] Artificial Legal Person
A company is a legal entity that has been created by the statues of law. Like a natural person, it
can do certain things, like own property in its name, enter into a contract, borrow and lend money,
sue or be sued, etc. It has also been granted certain rights by the law which it enjoys through
its board of directors.
2] Separate Legal Entity
Unlike a proprietorship or partnership, the legal identity of a company and its members are
separate. As soon as the joint stock company is incorporated it has its own distinct legal identity.
So, a member of the company is not liable for the company. And similarly, the company will not
depend on any of its members for any business activities.
3] Incorporation
For a company to be recognized as a separate legal entity and for it to come into existence, it has
to be incorporated. Not registering a joint stock company is not an option. Without incorporation,
a company simply does not exist.
4] Perpetual Succession
The joint stock company is born out of the law, so the only way for the company to end is by the
functioning of law. So, the life of a company is in no way related to the life of its members.
Members or shareholders of a company keep changing, but this does not affect the company’s
life.
5] Limited Liability
This is one of the major points of difference between a company and a sole
proprietorship and partnership. The liability of the shareholders of a company is limited. The
personal assets of a member cannot be liquidated to repay the debts of a company.
A shareholders liability is limited to the amount of unpaid share capital. If his shares are fully paid
then he has no liability. The amount of debt has no bearing on this. Only the company’s assets can
be sold off to repay its own debt. The members cannot be made to pay up.
6] Common Seal
A company is an artificial person. So, its day-to-day functions are conducted by the board of
directors. So when a company enters any contract or signs an agreement, the approval is indicated
via a common seal. A common seal is engraved seal with the company’s name on it.
So no document is legally binding on the company until and unless it has a common seal along
with the signatures of the directors.
7] Transferability of Shares
In a joint stock company, the ownership is divided into transferable units known as shares. In case
of a public company the shares can be transferred freely, there are almost no restrictions. And in
a public company, there are some restrictions, but the transfer cannot be prohibited.
 Advantages of a Joint Stock Company
• One of the biggest drawing factors of a joint stock company is the limited liability of its
members. Their liability is only limited up to the unpaid amount on their shares. Since
their personal wealth is safe, they are encouraged to invest in joint stock companies
• The shares of a company are transferable. Also, in the case of a listed public company
they can also be sold in the market and be converted to cash. This ease of ownership is
an added benefit.
• Perpetual succession is another advantage of a joint stock company. The
death/retirement/insanity/etc does affect the life of a company. The only liquidation
under the Companies Act will shut down a company.
• A company hires a board of directors to run all the activities. Very proficient, talented
people are elected to the board and this results in effective and efficient management.
Also, a company usually has large resources and this allows them to hire the best talent
and professionals.

Disadvantages of a Joint Stock Company

• One disadvantage of a joint stock company is the complex and lengthy procedure for
its formation. This can take up to several weeks and is a costly affair as well.
• According to the Companies Act, 2013 all public companies have to provide
their financial records and other related documents to the registrar. These documents are
then public documents, which any member of the public can access. This leads to a
complete lack of secrecy for the company.
• And even during its day to day functioning a company has to follow a numerous number
of laws, regulations, notifications, etc. It not only takes up time but also reduces the
freedom of a company
• A company has many stakeholders like the shareholders, the promoters, the board of
directors, the employees. the debenture holders etc. All these stakeholders look out for
their benefit and it often leads to a conflict of interest.

TYPES OF COMPANIES
On the basis of ownership, companies can be divided into two categories –
Private & Public.
Difference between Private Company & Public Co.
Private Co. Public Co.

It has minimum 2 and maximum 200 members. It has minimum 7 and maximum unlimited.

It cannot invite general public to buy its shares It invites general public to buy its shares and
and debentures. debentures.

There are certain restrictions on transfer of its

Its shares are freely transferable.
shares.
 It can commence business after obtaining
It can commence business after incorporation.
certificate of commencement of business.

It has to write only limited after its name

It has to write Private Ltd. After its name
Ex- Reliance Industries Ltd., Wipro Ltd.,
Ex- Tata Sons, Citi Bank, Hyundai Motor India.
Raymond’s Ltd.

In its minimum Paid up capital required is one In its minimum Paid up capital required is five
lakh. lakhs.

• CHOICE OF FORM OF BUSINESS ORGANISATION (POQ)…. Assignment in Blue

Book (5 MARKS)

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