Question

“A joint stock company is said to be an artificial person created by law, having a separate entity with a perpetual succession and a common seal.” Explain with the help of examples.

Answer 1

A joint stock company is considered an artificial person because it is created by law and does not have a physical existence like a human being. Despite this, it has the same rights as an individual to own property, engage in contracts, and sue or be sued in its own name.

1. Separate Entity: A company has a separate legal personality from its members. For example, if a company is sued, its stockholders are not held personally accountable. The firm, as a legal entity, has responsibility for its acts. For example, Tata Group is separate from its shareholders.
2. Perpetual Succession: A company’s existence is unaffected by the death, insolvency, or retirement of its members. This guarantees continuance. For example, Apple Inc. continues to exist even though its founder, Steve Jobs, passed away.
3. Common Seal: The common seal serves as the company’s official signature. It’s used to verify documents and contracts. For example, Reliance Industries uses its common seal to validate business agreements, ensuring that the company is legally bound by the terms.