Joint stock companies first came into being in the 18th century in Britain, and were mainly concerned with foreign trade. Initially, the organizational form was viewed with suspicion, it being supposed that it encouraged managerial efficiency and corruption. A corporation, chartered by the state in which it is headquartered is considered by law to be unique entity, separate and apart from those who own it. A corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders. The shareholders elect a board of directors (BOD) to oversee the major policies and decisions. The company has a life of its own and does not dissolve when ownership changes.
A company is a voluntary association, an incorporated association, an artificial person created by law, having a common seal and perpetual succession. Shareholders are owners of the company but management lies in the hands of BOD. Company means a company registered under an act.
According to H.L Haney: “A joint company is a voluntary association of individual for profit, having its capital divided into transferable shares the ownership of which is the condition of membership.”
Characteristics of Joint Stock Company
Compulsory incorporation:
A company is a voluntary association of persons formed and incorporated under the existing Corrine law. Only when it gets certificate of incorporation it comes into existence as a body corporate.
Artificial person:
A company is an artificial person created by law. It is created by legal process and not by natural birth. Even though it has no natural personality, it has legal personality. Therefore, it can enter into contracts, sue and can be sued, own property, appoint employees and borrow money like any other natural person.
Common seal:
Since a company is an artificial person having no physical features like a natural person, it cannot sign. Hence every company by law must have a common seal in which its name is engraved. The common seal can serve as its signature. The common seal is fixed on all important documents and contracts which is witnessed by signature of two directors and countersigned by secretary where ever required. The common seal is kept under the custody of directors.
Perpetual succession:
Since every company has separate existence from its members, directors and employees, their death, insolvency or insanity will not affect its life and existence. Men may come and they may go but a company remains forever. It can be wound up under the provision of the act.
Limited liability:
Usually the liability of members of a company is limited to the extent of uncalled or unpaid shares held by them. Their personal property cannot be seized to meet the company’s liability beyond the above mentioned liability.
Share capital:
The capital required by the company is raised by the issue of its shares. The share is a document that acknowledges the ownership of the company. The members who hold the share of a company can transfer its ownership to any other person, without the company’s permission.
Separation of ownership and capital:
In company organization the ownership and management are separate. The shareholders who are the owners do not take active part in the everyday affairs of the company. Instead they elect their representative known as directors, who with the help of managers and employees manage the company. Thus, there is division of labor and specialization.
Legal entity:
Since the company is created by law, it has separate legal existence compared to its members. Therefore the members cannot be personally held responsible for the acts of company and company cannot be held liable for the acts of the members.
Large membership:
The Company is owned by a large number of members- maximum of 50 in the case of private limited company and unlimited number of member in the case of public limited company.
Merits of joint stock company
Large capital:
A company can collect huge capital for the business through shares and debentures, public deposits, loans etc. Due to huge capital the company can conduct business on a large scale.
Limited liability:
Usually the liability of members of a company is limited to the extent of uncalled or unpaid shares held by them. Their personal property cannot be seized to meet the company’s liability beyond the above mentioned liability.
Continuity and stability:
Death, insolvency or insanity of any member of the company will not affect its life and existence. Men may come and they may go but a company remains forever. It can be wound up under the provision of the act.
Professional management:
The Company appoints experienced, competent and expert to manage the business. Their services lead to managerial and administrative efficiency and accuracy.
Economies of scale:
A company operates on a high scale and so it enjoys economies in production, distribution, management and financing.
Bargaining power:
Compared to other forms of organization, a joint stock company is a strong power in buying as well as in selling of goods because of its large scale production.
Legal status: Efficiency of labor :
Since the company is created by law, it has separate legal existence compared to its members. Therefore the members cannot be personally held responsible for the acts of company and company cannot be held liable for the acts of the members.
Large membership:
The Company is owned by a large number of members- maximum of 50 in the case of private limited company and unlimited number of member in the case of public limited company.
Transferability of shares:
Shares of Joint Stock Company, especially public companies, are freely transferable. A member who wants to sell his shares can easily do so in the stock market. This encourages the public and other to invest in shares.
Employment:
Joint Stock Company provides employment to a large number of people directly and indirectly. This leads to higher national income for the country and higher living standard of living for the people.
Government revenue:
Joint Stock Companies provide revenue to the government in the form of taxes charged directly and indirectly.
Research and development:
Joint Stock Companies undertakes R&D continuously thus bringing about new and improved products which benefits people.
Economic development:
Because of Joint Stock Companies there is all round development of trade, commerce and industry. The society in general gains the benefit of the industrial development. Large capital, government revenue, economic development etc. are the advantages of Joint Stock Companies.
Demerit of Joint Stock Company
Difficult formation:
Formation of Joint Stock Company is an expensive and time consuming process as a number of legal formalities have to be undertaken in order to register the company.
Lacks flexibility:
The working of a Joint Stock Company is less flexible s compared to other organizations. For very small thing they either have to follow a detailed procedure or obtain sanctions from various authorities. This results in lack of flexibility.
No business secrecy:
This form of organization lacks business secrecy because it is compulsory for the company to publish accounts and other records
Excessive government regulation:
The Company is a subject to excessive government control. It has to follow the numerous provision of the companies act. This makes working difficult.
Delay in decision:
The Joint Stock Company is completely not free to take all decisions and to implement the decisions. Due to excessive government control and democratic set up all decisions are taken in meetings and some decisions require shareholder’s approval. All this leads to delay in decisions.
Lack of contact with customer:
A company can’t be in a position to maintain intimate contacts with customers. It cannot be able enter to the requirements of each and every customer. Then there is no close personal touch which decreases the competitive strength of the business due to large scale operation.
Lack of contact with employees:
The top management may not have contact with their employees. This may cause friction and disputes amongst the management and the employees with may affect the worker’s and employee’s morale.
Conflict of interest:
Many persons are the owners of Joint Stock Company. There can be misunderstanding and jealousy among them and these cause problems in operation of business and profit making.
Not suitable for all type of business:
This type of organization is not suitable for business where personalized services are required.
Exploitation of shareholders:
Sometimes the BOD may misappropriate the fund and mislead the shareholders by window dress report. The directors may even manipulate the trading on the stock exchange. Thus shareholders can be exploited by corrupt directors.
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