A joint stock company or simply a company is a voluntary organization of individuals created to carry out certain large business activities. This is an artificial person established by law, which can be dissolved by law. The company has special legal provisions to survive even if members die. Its members donate money for a public cause. The capital of the company is the money thus donated. The capital of a company is divided into smaller units called shares. Because members invest their money in the purchase of shares of the company, they are known as shareholders and the capital of the company as share capital.
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| Define Joint Stock Company, Features, Advantages & Disadvantages |
Definitions
L.H. Honey "A joint stock company is a voluntary organization of individuals for profit, which divides capital into convertible shares and its owner is a member".
According to Lord Justice Lindley, "a joint stock company is a voluntary organization or a multi-member organization that makes valuable contributions of money or cash to a public stock and operates in a particular business and shares profits."
According to the Companies Act of 2013, "refers to a company incorporated under the Companies Act 2013, or the previous Companies Act."
The Companies Act of 1956 contained several amendments to the Companies Act. The law consists of 29 chapters, 470 sections, 7 tables and 95 sub-sections. The latest amendment to the law, the Companies (Amendment) Act, was amended in 2017 to strengthen corporate compliance and investor protection, while amending the laws to improve corporate governance and facilitate business in India.
Features of a Joint Stock Company
The characteristics of the joint stock company are as follows.
1. An artificial person who created the law: A company is an artificial person who created the law, which only exists when the law is considered. It is an abstract and invisible legal entity without body and soul.
2. Individual law firm: An organization (i.e., an entity) is very different (i.e., different) from one entity to another and is independent of the presence of the members that make it up. In other words, a company has a separate legal entity that is completely different from its members. In its name you can contract, buy and sell goods, hire people and run any legal business.
3. Creation: A company is usually started by a group of members called advertisers, who prepare a number of documents and comply with various legal requirements before starting its operations. A company can operate only if it is registered or incorporated under the Indian Companies Act 2013.
4. Public stamp in lieu of signature: The company cannot sign its documents as it is not a natural person. The company name is used instead of the standard stamp signature engraved. Any document containing the public seal and the signature of the officer is attached to the company. Usually, the secretary of the company has the power to seal his seal.
5. Fixed Balance: An organization has a fixed balance against a single business or partnership interest. Once a company is created, it remains indefinite until it is legally dissolved. In other words, a company has a sustainable life and the death, insanity, retirement or bankruptcy of its members (partners) will not affect its survival. The presence of companies continues regardless of the change in the balance of companies.
6. Limited Liability of Members: The liability of a member of a company is defined as the amount of shares he holds. Their liability is defined by the guarantee or the shares they hold. For example, Rs 10 he paid Rs 7 per share until his share liability was defined. Up to Rs. Beyond that, he does not have to pay any debts or losses to the company.
7. Transfer of shares: The members of the company (public company) are free to transfer or distribute shares at will to any individual. They do not need the consent of other shareholders to change their shares. But for a private company, there are certain restrictions on the transfer of shares.
8. Membership: A joint venture requires a minimum of two (2) members in a private limited company and seven (7) members in a public limited company. The maximum limit of a private limited company is fifty (50). There is no maximum number of members in a public limited company.
9. Democratic Management: People from different walks of life and from different backgrounds contribute to the capital of a company. Therefore, they cannot take over the day-to-day management of the company. They may be involved in determining the general policies of the company, but the day-to-day affairs of the company are handled by their elected representatives known as directors.
10. Legal Conditions: A company must meet a number of legal requirements. A company is governed by corporate law, which must comply with various legal rules. For example, such companies must submit multiple revenues to the government, and its accounts must be audited by a chartered accountant.
11. Women Director: According to the Companies Act 2013, there should be at least one woman director on the board of companies appointed in a public company.
Advantages and Disadvantages of Joint Stock Company
Advantages
The advantages of a joint stock company are:
1. Limited Liability: The shareholders of a company are responsible only for the face value of the shares they hold. The company cannot attach their private property to repay the debts. So the risk is low. It encourages people to invest money in corporate securities. Therefore, the organizational structure of the company contributes to the growth of the economy.
2. Large financial resources: The organizational structure of a company helps to mobilize large financial resources due to the principles of limited liability and expansion of ownership. It raises funds in the form of shares of smaller units so that people with smaller means can also buy them. The benefits of limited liability and the conversion of stocks attract investors.
3. Continuity of Existence: A company is an artificial person that has created legal and independent legal status. It will not be affected by the death or bankruptcy of the members. Thus a member is a company that does not enter, relocate or exit.
4. Benefits of large scale operations: Only a joint stock company can provide capital for large scale operations. This leads to large-scale production, which reduces efficiency and operating costs. This opens up more opportunities for expansion.
5. Cash Flow: Switching stocks acts as an additional incentive for investors. Shares of a public company can be easily traded on the stock exchange. The public can buy shares when they have the money. Future investors can invest when they need money and convert stocks into cash.
6. Professional Management: Companies need professional managers at every level of their operations due to their complex operations and large scale business. The company can buy specialized management with large financial resources. This leads to efficiency in managing their business affairs.
7. Research and Development: A company in general can invest a lot of money in research and development, innovative production processes, design and innovation of new products, product quality improvement and new ways for employees.
8. Tax Deductions: Although companies have to pay higher taxes, their tax burden is less as they enjoy multiple tax benefits under the Income Tax Act.
9. Jobs: A company creates or creates jobs for a lot of people. Thus, it improves the overall quality of life of an individual and a country.
10. Balanced Regional Growth: Large increase in the number of companies in developing countries like India, Government incentives and grants encourage entrepreneurs to start a company in underdeveloped and underdeveloped sectors. These companies eliminate the imbalance between the developed region and the underdeveloped region.
Disadvantages
A joint stock company has the following disadvantages:
1. Multiple legal systems: Creating a company is time consuming and expensive. Many legal procedures have to be followed and many legal documents have to be prepared and filed. If you are late for work, you may lose the speed to start the business early.
2. Lack of motivation: Directors and other executives of a company have no personal involvement in the effective management of a company. The difference between entitlement and control, and the lack of a direct link between effort and reward, can lead to personal curiosity and discouragement. It is difficult to maintain a personal relationship with all customers and employees. As a result, the efficiency of business operations may be low.
3. Delay in decisions: Rhetoric and bureaucratic restrictions do not allow for quick decisions and immediate action in an organizational form. There is little opportunity for individual entrepreneurship and responsibility. Paid employees want to play safely and shift responsibilities. There is no flexibility of activities in an organization.
4. Financial Autonomy: The management of a company should be controlled by the collective will of its members. But in practice, it is ruled by a few (nobles). Directors often try to manipulate voting power to mislead members and maintain their control.
5. Corruption Management: In a company, dishonest management can occasionally lead to fraud and misuse of property. Investors can create fake companies to lose hard-earned money. Dishonest people can manage annual accounts to show artificial profits or losses for their personal gain.
6. Excessive government regulation: There are legal rules and regulations at every stage of a company’s management. There are a number of legal rules that must be followed and reports must be filed. Such legal interference in day-to-day operations leads to secrecy. Legal requirements require a lot of time and money.
7. Unhealthy speculation: Shares of a public company are fraudulent in a stock extension. The price of these stocks will vary depending on financial health, dive-tenders, future prospects, and the company’s reputation. Directors of a company may engage in special rights trading based on inside information for their personal gain. The structure of the company will lead to the concentration of financial power in a few hands.
8. Conflict of Interests: A company is the only form of business in which conflicts of interest may arise. Conflicts can continue between a group of shareholders of a company and the board of directors, or between shareholders and lenders, or between management and employees.
9. Lack of confidentiality: Under corporate law, a company is required to disclose and disclose various information about its activities. The widespread publicity of things makes it almost impossible to keep company secrets. Accounts of a public company are open to the public for review.
