Note on Joint Stock Company

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Meaning and Definition:

The joint stock company has come into existence over the limitations of sole trading and partnership firms. The major limitations of sole trading and partnership are limited capital and unlimited liability. Such limitations are the main obstacles for large-scale production and distribution of goods and services. A joint stock company is a voluntary association of persons for establishing a business under the company act, 2053. It is a distinct legal person created by law. Its capital is divided into a large number of parts with equal value. Each part is called share. The company collects capital by selling the shares to individuals and organizations.

The following are the meaning of Joint Stock Company:

"A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal." - L.H. Haney

"A joint stock company is an incorporated association which is an artificial person created by law having a common seal and perpetual succession." -Sherlekar

Characteristics

The following are the main characteristics of a joint stock company

  1. Separate legal existence: A company is an artificial person created by law. Like a real person, it can buy or sell the property in its own name and enter into business contracts. It can sue and can be used. It is distinct from its members and enjoys an independent legal existence.
  2. Transferable shares: A company collects its capital by selling shares. The shares are freely transferable. A shareholder can convert his shares into cash easily either by selling or transferring without the consent of other members or the board of directors.
  3. Limited liability: The liability of shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the property of the company is not sufficient to pay its debts, the creditors suffer themselves.
  4. Perpetual succession: A company has a permanent life. Due to separate legal existence, the life of a company is not affected by the death, insolvency, lunacy, disability or imprisonment of the shareholders. Hence, it is said that "members may come, members may go, but the company goes on for ever."
  5. Common Seal: Despite being an artificial person, a company cannot sign like a natural person. It uses a common seal as its official signature. It affixes the common seal on all official documents for their validity.
  6. Democratic management: A joint stock company is a democratic organization. All the decisions are taken in annual general meeting and board meeting on the basis of the majority. The board is elected and dismissed according to the interest of a majority of shareholders.

Advantages

The following are the main advantages of a joint stock company:

  1. Huge capital: A joint stock company can raise a huge amount of capital by selling shares. Due to the unlimited membership, limited liability of the shareholders and transferable share, it can easily collect much more capital than a sole trading concern or partnership organization. Its capital is enough for the production and distribution of goods and services in a large scale.
  2. Effective management: In a joint stock company, there is a separation between ownership and management which ensures effective planning, implementation and control of the activities of the company. The shareholders elect experienced and capable directors for all the overall management of the company. The board appoints professional managers for the effective management of production, finance and accounting activities of the company.
  3. Limited liability: In a joint stock company, the liability of the shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the properties of the company are not sufficient to clear its debts, the creditors suffer themselves.
  4. Public faith: A joint stock company is a corporate organization. Its activities are transparent. It publishes its financial statements in the newspaper for the knowledge of concerned parties. The people have much faith in its activities, position, and long-term existence.
  5. Perpetual succession: The life of a joint stock company is permanent. Being a distinct legal entity, its life is not connected with the life of the shareholders. The death, insolvency, lunacy, disability or imprisonment of the shareholders does not affect the life of the company.

Disadvantages:

  1. Neglect of a majority: In a joint stock company, all the major decisions are made by the shareholders holding a majority of shares. Hence, the voice of a minority of shareholders is neglected by the company.
  2. Inflexibility: A joint stock company is a less flexible organization than a sole trading concern and partnership firm. It cannot change its objectives, capital, decisions and major activities easily. To bring changes on such matters, it has to change the clauses of the memorandum and articles of association.
  3. Lack of secrecy: A joint stock company cannot maintain business secrets like a sole trading concern and a partnership organization. The company is managed by a large number of directors and managers due to which business secrets are leaked out easily. It publishes financial statements regularly. As a result, its weakness is known by its competitors and other concerned parties.
  4. Delay in decision: In a joint stock company, there is a considerable delay in the decision-making process. Important decisions can only be made in the meetings of the board of directors or shareholders. Such meetings are held only after certain intervals. Such delay in decisions does not help to grab business opportunities and to avoid losses.
  5. Chances of frauds: In a joint stock company, there is a great chance of frauds by the directors and managers. Frauds are committed by showing false payments, omitting to record incomes, presenting the profit and position of the country wrongly. Such frauds are committed for the personal benefits of the directors and managers at the cost of the company and shareholders.

  • A joint stock company is a voluntary association of persons for establishing a business under the company act, 2053. It is a distinct legal person created by law.
  • The company collects capital by selling the shares to individuals and organizations.
  • Separate legal existence, transferable shares, limited liability, perpetual succession, common seal and democratic management are the characteristics of the company.
  • A joint stock company has a permanent life.
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Very Short Questions

The joint stock company has come into existence over the limitations of sole trading and partnership firms. The major limitations of sole trading and partnership are limited capital and unlimited liability. Such limitations are the main obstacles for large-scale production and distribution of goods and services. A joint stock company is a voluntary association of persons for establishing a business under the company act, 2053. It is a distinct legal person created by law. Its capital is divided into a large number of parts with equal value. Each part is called share. The company collects capital by selling the shares to individuals and organizations.

The following are the meaning of Joint Stock Company:

According to L.H. Haney, "A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal."

According to Sherlekar, "A joint stock company is an incorporated association which is an artificial person created by law having a common seal and perpetual succession."

From the above definition, it is clear that a joint stock company is an artifical person created by law to carry on a business for profit with dividend transferrable shares, limited liabilities, perpetual sucession and a common seal which is managed by elected representatives.

The following are the main characteristics of a joint stock company

  1. Separate legal existence: A company is an artificial person created by law. Like a real person, it can buy or sell the property in its own name and enter into business contracts. It can sue and can be used. It is distinct from its members and enjoys an independent legal existence.
  2. Transferable shares: A company collects its capital by selling shares. The shares are freely transferable. A shareholder can convert his shares into cash easily either by selling or transferring without the consent of other members or the board of directors.
  3. Limited liability: The liability of shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the property of the company is not sufficient to pay its debts, the creditors suffer themselves.
  4. Perpetual succession: A company has a permanent life. Due to separate legal existence, the life of a company is not affected by the death, insolvency, lunacy, disability or imprisonment of the shareholders. Hence, it is said that "members may come, members may go, but company goes on for ever."
  5. Common Seal: Despite being an artificial person, a company cannot sign like a natural person. It uses a common seal as its official signature. It affixes the common seal on all official documents for their validity.
  6. Democratic management: A joint stock company is a democratic organization. All the decisions are taken in annual general meeting and board meeting on the basis of the majority. The board is elected and dismissed according to the interest of a majority of shareholders.

The following are the main characteristics of a joint stock company

  1. Separate legal existence: A company is an artificial person created by law. Like a real person, it can buy or sell the property in its own name and enter into business contracts. It can sue and can be used. It is distinct from its members and enjoys an independent legal existence.
  2. Transferable shares: A company collects its capital by selling shares. The shares are freely transferable. A shareholder can convert his shares into cash easily either by selling or transferring without the consent of other members or the board of directors.
  3. Limited liability: The liability of shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the property of the company is not sufficient to pay its debts, the creditors suffer themselves.
  4. Perpetual succession: A company has a permanent life. Due to separate legal existence, the life of a company is not affected by the death, insolvency, lunacy, disability or imprisonment of the shareholders. Hence, it is said that ‘members may come, members may go, but company goes on for ever.
  5. Common Seal: Despite being an artificial person, a company cannot sign like a natural person. It uses a common seal as its official signature. It affixes the common seal on all official documents for their validity.
  6. Democratic management: A joint stock company is a democratic organization. All the decisions are taken in annual general meeting and board meeting on the basis of the majority. The board is elected and dismissed according to the interest of a majority of shareholders.

The following are the main advantages of a joint stock company:

  1. Huge capital: A joint stock company can raise a huge amount of capital by selling shares. Due to the unlimited membership, limited liability of the shareholders and transferable share, it can easily collect much more capital than a sole trading concern or partnership organization. Its capital is enough for the production and distribution of goods and services in a large scale.
  2. Effective management: In a joint stock company, there is separation between ownership and management which ensures effective planning, implementation and control of the activities of the company. The shareholders elect experienced and capable directors for all the overall management of the company. The board appoints professional managers for the effective management of production, finance and accounting activities of the company.
  3. Limited liability: In a joint stock company, the liability of the shareholders is limited to the face value of the shares held by them. The private properties of the shareholders cannot be claimed to clear the debts of the company. If the properties of the company are not sufficient to clear its debts, the creditors suffer themselves.
  4. Public faith: A joint stock company is a corporate organization. Its activities are transparent. It publishes its financial statements in newspaper for the knowledge of concerned parties. The people have much faith in its activities, position and long term existence.
  5. Perpetual succession: The life of a joint stock company is permanent. Being a distinct legal entity, its life is not connected with the life of the shareholders. The death, insolvency, lunacy, disability or imprisonment of the shareholders does not affect the life of the company.

  1. Neglect of a majority: In a joint stock company, all the major decisions are made by the shareholders holding a majority of shares. Hence, the voice of a minority of shareholders is neglected by the company.
  2. Inflexibility: A joint stock company is a less flexible organization than a sole trading concern and partnership firm. It cannot change its objectives, capital, decisions and major activities easily. To bring changes on such matters, it has to change the clauses of the memorandum and articles of association.
  3. Lack of secrecy: A joint stock company cannot maintain business secrets like a sole trading concern and an partnership organization. The company is managed by a large number of directors and managers due to which business secrets are leaked out easily. It publishes financial statements regularly. As a result, its weakness are known by its competitors and other concerned parties.
  4. Delay in decision: In a joint stock company, there is considerable delay in then decision making process. Important decisions can only be made in the meetings of the board of directors or shareholders. Such meetings are held only after certain intervals. Such delay in decisions does not help to grab business opportunities and to avoid losses.
  5. Chances of frauds: In a joint stock company, there is a great chance of frauds by the directors and managers. Frauds are committed by showing false payments, omitting to record incomes, presenting the profit and position of the country wrongly. Such frauds are committed for the personal benefits of the directors and managers at the cost of the company and shareholders.

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  • "A company is an artificial person created by law having a separate entity with a perpetual succession and a common seal." WHo gave this definition?

    J.R. Batliboi


    A.N. Agrawala


    L.H. Haney


    Sherlekar


  • "A joint stock company is an incorporated association which is an artificial person created by law having a common seal and perpetual succession." Who said this?

    L.H. Haney


    Sherlekar


    M.N. Mishra


    A.N. Agrawala


  • Which one of them is not the characteristics of joint stock company?

    Perpetual sucession


    Limited liability


    Separate legal existence


    unlimited liability


  • Which one of them is the advantage of Joint Stock Company?

    Huge capital


    Inflexibility


    Neglect of a majority


    Delay in decision


  • Which one of them is the disadvantage of Joint Stock Company?

    Neglect of a minority


    Perpetual sucession


    Limited liability


    Effective management


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What is decision making of joint stock company?


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