Unit 4 JOINT STOCK COMPANY

4. JOINT STOCK COMPANY

• Joint Stock Company is a voluntary association of the

people where the promoters of the company invite the
general public of the country to Invest their savings in the
formation and development of the company.
• The investors can participate in the process of capital
contribution by subscribing the ‘shares’ of the company.
• The entire capital of the company is divided into small
parts known as shares and these shares are offered to
general public.
• Those who subscribe to the shares of the company are
known as members and owners of the company.
• They subscribe to the shares of the company
depending upon their capacity and will. In
return they have a say in management of the
company and get financial returns too in form
of dividend whenever possible for the company.
• “Joint Stock Company is voluntary association of
individuals for profits, having a capital divided
into transferable shares, the ownership which is
the condition of membership.” - L. H. HANEY
2) CHARACTERISTICS / FEATURES OF JOINT STOCK COMPANY

1. Registration: Companies are registered with registrar of companies, appointed by

central government for the purpose of registration of the company. Registration
of the company is mandatory.
2: Separate legal entity:
Once the registration gets completed, the company acquires a Separate legal
existence. A company will now be different from its Shareholders
3. Share capital:
Total capital requirement is divided among number of shares on share represents a
unit of capital issued by the company to the Public. Thus, total capital is broken
into various numbers of units called Share.
4. Limited liability
5. Perpetual succession:
Once a company formed in the eyes of law, it remains in the environment till it is
dissolved. It never dies with the death, insolvency, insanity and change in
members.
6. Common seal:
A company is an artificial person created by law. It does not have its physical existence. The
common seal, thus, acts as an official signature of the company which is affixed with the
documents of the comp
7. Transferability of shares:
As mentioned earlier, the capital of the joint stock company is divided into shares. These shares
are freely transferable (with certain conditions of course). Any person can subscribe to the
shares of the company and can sell them to anyone at their free will.
8. Separate property :
The property such as land, building, machinery, equipments etc. belongs to the company and not
to the owners (shareholders) of the company. The company can purchase and dispose the
property on its own name anytime as it thinks fit.
9. Capacity to sue
A company does possess a capacity to sue others as it hires a separate legal existence. In the eyes
of law, it is an artificial person who can sue others and can be sued by others also.
 3) MERITS OF A J OINT STOCK COMPANY

1. Accumulation of huge financial resources

2. Economies of large scale operations
3. Scope of expansion
4. Stability of existing
5. Transferability of shares
6. Democratic control
All the shareholders of the company are the owners of the company too. So for any important
proceedings or When important decision is to be taken shareholders are to be consulted by
conducting an official meeting and the decision of majority is to be given due respect. The
Board of directors who manage the company is also elected by shareholders.
7. Managerial efficiency
8. Stimulation to savings and investments
9. Diffused risks
10. Statutory regulation and control
11, Public confidence and popularity
12. Capacity to afford maximum risks
13. Social responsibility
4) DEMERITS OF A JOINT STOCK COMPANY

1. Adherence of too many legal formalities :

2. Concentration of powers in few hands :
3. Excessive Government control and interference
4. Undue speculation in shares of the company:
5. Fraudulent management: The directors and promoters
create a rosy picture of the company in the annual
meeting, misguiding the innocent investors and
unaware of the company’s retreat. Thus directors
engage themselves with unscrupulous practices and
misusing company’s capital.
7. Inflexibility in management:
8. Monopolistic control and exploitation of consumers:
9. Other social and economic problems
It also creates social and economic problems in the
country. It creates problems like regional imbalances
where cities are too much in a state of congestion and
developed while other areas are completely
underdeveloped and thinly populated. This raises the
amount pollution of a particular region. Also it gives rise
to social tensions like strikes, lock outs, closure,
Retrenchment etc.
 5. Formation of a Company:

• Any seven or more persons (2 or more persons in

case of a private company) for some common and
lawful objective can start up a company with or
without limited liability.
• Documents to be filled with the Registrar- Every
state of our country has registered office with whom
the Promoters have to register the company.
• It is desirable to ensure the name proposed for the
company. If it getsapproved, then following
documents are to be filed with the registrar:
1. Memorandum of Association, signed by the subscribers.
2. Articles of Association, if any signed by the subscriber who has subscribed Memorandum of
Association. A public company may adopt Table-A instead of preparing its own articles.
3. Agreement If a company offers any individual for appointing him/her as director or a manager.
4. A list of directors who has given their consents to become the directors of the company and
also had subscribed for qualifying shares.
5. A declaration asserting that all the formalities of the Act have been fulfilled. This declaration
shall be signed by any of the following persons:
 An advocate of the supreme court or of a high court; or
 An attorney or pleader entitled to appear before a high court;
 A secretary or a chartered accountant in whole-time practice in India, who is engaged in the
formation of the company; or
 A person named in the Articles as a director, manager or secretary of the company Section
33(2)
6. After filing these documents, a company should give notice to the registrar specifying the
location of the registered office of the company and registrar will record the same. Section
146
• Certificate of incorporation :
• If registrar is satisfied With the fulfilment 0f formalities by the
company he issues "CERTIFICATE OF INCORPORATION"
(Certificate Of FORMATION of the company) after registering
Memorandum, Articles and all other documents submitted by
the company.
• When a company is registered and certificate is obtained, below
mentioned consequences follow:
 The company now born and has acquired a separate legal entity
 It hires the status of perpetual succession.
 Property rights different from its owners.
 5) TYPES OF JOINT STOCK COMPANIES

• ON THE BASIS OF MODE OF INCORPORATION

• Chartered Company
• A company which is incorporated by the charter issued by Royal persons, Kings or Queens
is known as Chartered Company. Before the establishment of Companies Act, companies
introduced, use to run on such charters. East India Company, Chartered Bank of England etc.
are its famous examples. Such companies are no more into existence in India.
• Statutory Company
• A company which is established with a special purpose by passing a Special Act in
Parliament is known as a Statutory Company. Generally, all public utility concerns are
formed through such a form. It has important economic and social functions to be
executed. Reserve Bank of India, State Bank of India, Industrial Finance Corporation etc.
are examples of such statutory concerns.
• Registered Company
• A company registered under Companies Act of 1956 is known as Registered Company. Out
of total companies existing in India, majority of them fall under this category. They are under
constant supervision and have to follow the provisions and regulations as laid for them in
the Companies Act of 1956.
• ON THE BASIS OF EXTEND OF LIABILITY
• Company limited by shares
• Company’s capital is distributed amongst thousands of owners through shares. A company
limited by shares is registered under the 'Provisions of the Companies Act. The liability of
shareholders under such a case shall be limited by shares. Their liability remains up to the
amount invested by them in shares. In case if the shares are partly paid up, they are liable to
pay the rest of the amount.
• Company limited by guarantee
• The liability of shareholders is limited up to the amount agreed by them and is mentioned
in the Memorandum of Association. The need for such an assurance or guarantee arise: at
the time of winding up of company. After selling its assets if the company is liable for debts
further, the existing members will have to come into picture and clear off the debts as
promised.
• Company with unlimited liability
• Here under such a case the liability of the shareholders is unlimited i.e. members are
personally liable to clear off the debts raised by me company. Company with unlimited
liabilities is similar to a partnership Firm having huge number of partners. Existence of such
companies in India has almost been nil.
• ON THE BASIS OF TRANSFERABILITY OF SHARES
• Private company
• A private company is registered under Companies Act by private
owners.
• Public company
• A public company too is registered tinder Companies Act but the
difference lies with its scope of involving number of people with it.
Here the promoter of public companies issue prospectus, invite
general public for the subscription, advertises its company for the
same and has no restriction on transfer of shares. The investors can
easily transfer their shares. The minimum number of persons
required to start a public company is seven and there is no upper
limit for number of shareholders or its members.
• ON THE BASIS OF JURISDICTION OF FUNCTIONING OF THE COMPANY
• Indian company
• A company which is registered and incorporated in India is called an Indian Company. It
is registered under Indian companies Act. It also necessitates having its registered
office in India.
• Foreign company
• Such company is registered in foreign country, but conducts its business in India
through their agents, branches or any other source. But me provision of Indian
Companies Act is equally applicable to Foreign Company as the law of land would
always matter.
• Multi-national company
• A company whose management, ownership, area of operations and control is spread
in more than one country is known as multinational company. Its head-quarter is
located in the country of its origin and branches are spread all over the world. Their
business policies and decisions too are decided with reference to global context. Such
multinationals have their production plant also spread over the world.
• ON THE BASIS OF THE EXTENT OF OWNERSHIP AND CONTROL
• Government company
• A company where Government holds a share capital of at least 51 % is known as
Government Company. It actually is run and managed by Government. The company
can be held by State Government, Central Government or jointly by both. Public
enterprises with important c0mmercial function are established through such a
corporate form. BHEL (Bharat Heavy Electricals Limited), BEL (Bharat Electronics Limited),
HMT (Hindustan Machine Tools) etc. are the famous examples of it.
• Holding company
• A company which directly or indirectly holds 50% of the equity shares in other
companies and their by gains a control over such companies is known as a Holding
Company. A holding company nominates majority of his director in the Board of the
company Whose equity shares it holds.
• Subsidiary company
• A company whose 50% or more share capital is held by other, company is known as a
subsidiary company. So its more than 50% voting rights is held by the holding company.
Also majority of directors are appointed by the holding company.
 6) CONCEPT OF ONE PERSON COMPANY

• It is a type of company (generally private), where in one person holds

the whole of the share capital of the company and t0 fulfil the
mandatory requirements of the Act of hiring minimum number of
members to establish a company, some dummy members who m
generally the family members or friends are given few shares each.
Example:
• A company has issued 10,000 shares of Rs. 10 each. Out of these
10,000 shares, 9,993 shares are held by only person while rest shares
are given 7 different persons who are mostly family members or
friends. This is called one-person company.
• A person company, like any other company has almost all the features
of a joint stock company viz., it has legal existence separate from its
owner, limited liability, it has to be registered with registrar, perpetual
succession, separate property etc.
THANK YOU