Question

Answer the following question:

Define Joint Stock Company and explain its feature.

Answer 1

Definition: Prof. Haney defines Joint Stock Company in the following words, “A joint stock company is a voluntary association of individuals for profit having a capital divided into transferable shares, the ownership of which is the conditions of membership.” In simple terms, a joint stock company is a form of business organisation in which persons interested in doing some business with the sole aim of earning profit form an association and get it incorporated (registered) under the Companies Act.
Features: The features of a joint stock company are explained as follows:
(1) Artificial person: As soon as a company is incorporated, it is separated from its shareholders and it received independent statutory status. It is recognised as a person in the eyes of law though it has no physical existence. For this reason, it is called an artificial (legal) person. It has a separate name and it uses a common seal as a substitute for its signature.
(2) Voluntary association: A joint stock company is an association of many persons. Any person irrespective of caste, creed, colour, religion, and economic status can become a member of the company by purchasing its shares. However, membership is not compulsory but voluntary.
(3) Perpetual succession: A company is an artificial person created by the process of law and dissolved only by the process of law. Its existence and continuation are not affected by death, retirement, insolvency, or insanity of its member or members. The company continues to exist in spite of the changes in its membership.
(4) Limited liability: The liability of a shareholder is limited to the extent of the Face Value of the shares held by him. If the share amount is fully paid (i.e. face value), then there is no further liability on the part of the shareholder‘In the event of liquidation of the company, the personal property of the shareholders cannot be attached by the creditors in settlement of their debts.
(5) Common seal: The Companies Act provides that every company must have its own seal, known as the ‘common seal’, and get it registered. Since the company is an artificial person, cannot sign as a human being, the common seal is used as the signature of the company.
(6) Membership: In a private limited company, the minimum membership is 2 and the maximum membership is 200. In a public limited company, the minimum membership is 7 and there is no limit for the maximum number of members.
(7) Registration: As per the provisions of the Indian Companies Act, 1956, the registration is compulsory for every joint stock company. A company cannot be formed without registration.
(8) Transferability of shares: The ownership of share is the pre-condition on membership. In the case of a public limited company, the shares are freely transferable. The transferability of shares enables a shareholder to get back his capital easily by selling them on the Stock Exchange. However. The shares of the private limited company are non-transferable.
(9) Separation of ownership from management: In the case of a joint stock company, the ownership of the joint stock company remains with the shareholders and the management is entrusted to the elected representatives of the shareholders known as the directors. The directors form themselves into the Board of Directors which formulates plans, strategies, and policies with respect to the business operations of the company.