Joint Stock Company

Topics: Corporation, Stock, Types of companies Pages: 27 (6461 words) Published: November 25, 2012
Joint Stock Company


A company is an artificial person created by law, having a separate legal entity, with a perpetual succession and a common seal. It is an association of individuals for the purpose of earning profit. It has a capital divided into a number of shares, of which each member possesses one or more shares and which are transferable by its owners.

Joint Stock Company has been defined by many eminent authors, jurists and institutions. Some of these definitions are given below –

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

According to Company Act 1994 – “Company means a company formed and registered under this Act or any existing company.” [Section 2(1.c)]

According to Chief Justice Marshall – “A company is an artificial being invisible, intangible and existing only in the eyes of law.”

The system of joint stock organization is very useful for large undertakings for which large capital is required. It is an incorporated association created by law, having distinctive name, a common seal, perpetual succession, limited liability etc. formed to carry on business for profit.

Characteristics of Joint Stock Company

The most distinguishing characteristics of a joint stock company can be stated as follows –

1. Incorporated association : A company is an incorporated association. It comes into existence only after registration under the Companies Act.

2. Voluntary association : A company is an association of many persons on a voluntary basis. So, a company is formed by the choice and consent of the members.

3. Artificial legal person : A company has a legal personality and as such it is regarded by law as an artificial legal person. A company has the right to acquire and dispose of the property.

4. Separate legal entity : A company has a legal entity distinct from its members. It has an independent existence.

5. Common seal : The common seal with the name of the company engraved on it, is used as a substitute for its signature.

6. Perpetual succession : The company has perpetual succession as its existence is not affected in any way by the death, insolvency or exit of any shareholders.

7. Transferability of shares : The shareholders can transfer their shares to any person of their choice. It enables a shareholder to increase or decrease his investment in a company at any time.

8. Limited liability : Liability of the members of a limited company is restricted to the face value of the shares purchased by them. The personal property of the members cannot be attached to satisfy the claims of creditors of a company.

9. Separation of ownership from management : The company is not managed by all the members because the number of members may be large. The authority to manage the whole affairs is conferred to elected representatives of members known as directors.

10. Statutory regulations and government control : The company is governed by the Company Act and it has to follow various provisions of the aforesaid Act. A company has to comply with numerous statutory requirements.

11. Rigidity of objects : The type of business in which the company would participate must be mentioned in the ‘object clause’ of its Memorandum of Association.

12. Strict legal formalities to commence business : In order to form a company, it is necessary to submit certain documents to the Registrar Companies such as memorandum of association, articles of association, prospectus, list of directors etc.

13. Social benefits : Company form of business enables better utilization of available resources and thus ensures that society have benefited.

14. Accountability to shareholders : All the affairs of the company are to be disclosed to the shareholders so that they may come to know about the prospects and other problems of the company as a whole.

15. Public...
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