Define Joint Stock Company, Features, Advantages & Disadvantages

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 reserves that will survive even if its members die. Its members donate money for a public cause. The money thus donated is the capital of the company. The company’s capital is divided into smaller units known as shares. Because members invest their money in buying shares of the company, they are known as shareholders and the company’s capital is known as share capital.

Define Joint Stock Company, Features, Advantages & Disadvantages

Definations

L.H. Honey “A joint stock company is a voluntary organization of individuals for profit, which divides capital into convertible shares, with its owner being a member”.

According to Lord Justice Lindley, “The Joint Stock Company is a voluntary organisation or organisation of many members that who makes a valuable contribution of money or cash to a common stock, operates on certain trades and shares profits from it.”

According to the Companies Act of 2013, “a company refers to an organization that is incorporated under the Companies Act 2013, or any previous company law.”

The Companies Act of 1956 contained several amendments to the Companies Act. The Act 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 Joint Stock Company

The Features of the joint stock company are as follows.

1. An artificial person created by law: A company is an artificial person who created by law, which exists only 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., entity) is very different (i.e., different) from one company to another and is independent of the existence of the members that make it up. In other words, a company has a separate legal entity that is completely different from its members. It can contract, buy and sell goods, hire people and run any legal business in its name.

3. Formation: A company is started by a group of members, commonly known as advertisers, who prepares a number of documents and complies with a number of legal requirements before commencing its operations. A company can only function if it is registered or incorporated under the Indian Companies Act 2013.

4. Common Seal as a substitute for 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 bearing the public seal and the signature of the officer is attached to the company. Generally, the secretary of the company has the power to keep the seal in his possession.

5. Perpetual existence: A company has a permanent presence as opposed to a single business or partnership interest. Once a company is created, it will remain indefinite until it is legally dissolved. In other words, a company has a stable life and the death, insanity, retirement or bankruptcy of its members (shareholders) does 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 limited by the amount of shares he holds. Their liability is defined by the guarantee or the shares they hold. For example, Rs. 10 and He paid Rs.7 per share, as long as his share liability was defined. upto Rs. 3. Beyond this, he does not have to pay anything for the debts or losses of the company.

7. Transfer of shares: The members of the company (public company) are free to transfer or distribute shares to any individual at will. 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: The formation of a joint stock company requires a minimum of two (2) members in case of private limited company and seven (7) members in case of public limited company. The maximum limit of in case of private limited company is fifty (50). There is no maximum limit on the number of members in a public limited company.

9. Democratic Management: People from different walks of life and from different regions 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 comply with a number of legal requirements. A company is governed by corporate law and 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, a public company must have at least one woman director in the group of designated companies.

Also Read: Classification of Joint Stock Companies

Advantages and Disadvantages of Joint Stock Company

Advantages

The following are the advantages of Joint Stock Company;

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 pay off debts. So the risk is less known. It encourages people to invest money in corporate securities. Therefore, the organisational structure of the company contributes to the growth of the economy.

2. Large financial resources: The organisational structure of the company helps to mobilize large financial resources due to the principles of limited liability and extension 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 created by law and with independent legal status. It is not affected by the death or bankruptcy of the members. Thus a company exists without a member entering, transferring or exiting.

4. Benefits of large scale operations: Joint stock company is the only business entity that can provide capital for large scale operations. This leads to large-scale production, which leads to inefficiency and reduced operating costs. This opens up more opportunities for expansion.

5. Liquidity: 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. With large financial resources the company can buy specialized management. This leads to efficiency in managing their business affairs.

7. Research and Development: A company can usually invest a lot of money in research and development, advanced manufacturing processes, design and innovation of new products, improve product quality and new ways of training employees.

8. Tax benefits: Although companies have to pay higher taxes, their tax burden is less as they enjoy multiple tax deductions under the Income Tax Act.

9. Employment Opportunities: A company creates or creates jobs for a lot of people. Thus, improving the overall quality of life of an individual and the country.

10. Balanced Regional Growth: Large increase in the number of companies in developing countries like India, Government incentives and subsidies encourage an entrepreneur to start a company in underdeveloped and underdeveloped areas. These companies eliminate the inequality between the developed area and the under-developed area.

Disadvantages

A joint stock company has the following disadvantages:

1. Multiple legal formalities: Forming a company is time consuming and expensive. Many legal procedures have to be followed and many legal documents have to be prepared and filed. Delay in work may cause the business to lose the speed of an early start.

2. Lack of motivation: Directors and other executives of a company have no personal involvement in the effective management of a company. The distinction between right 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: Redtapism and bureaucratic restrictions do not allow for quick decisions and immediate action in an organizational form. There is little opportunity for personal entrepreneurship and responsibility. Paid employees like 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 governed by the collective will of its members. But in practice, it is ruled by a few (nobles). Directors often try to manipulate voting power in order to mislead members and maintain their control.

5. Corruption Management: In a company, dishonest management can lead to occasional fraud and misuse of property. Investors can create fake companies to lose the 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. It takes a lot of time and money to comply with legal requirements.

7. Unhealthy speculation: Shares of a public company are tampered with 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 spec rights trading based on inside information for their personal gain. The structure of the company will also 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 there may be a conflict of persistent interests. Conflicts may continue between a group of shareholders and the board of directors of a company, or between shareholders and lenders, or between management and employees.

9. Lack of confidentiality: Under company law, a company is required to disclose and publish various information about its operations. Extensive advertising of things makes it almost impossible to keep company trade secrets. Accounts of a public company are open to the public for review.

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