Significance of Joint Stock Company
The joint stock company is the third major legal for of business ownership. It has entirely a different organizational structure from the sole proprietorship or partnership. It is setup due to two main reasons.
Firstly, the sole proprietorship partnership forms of organizations cannot meet the increased capital demand of industry and commerce,
Secondly, the company offers the protection of limited liability to the investors.
What is a Joint Stock Company
A joint stock company is a voluntary association formed by people to carry on a certain business for profit. People contribute their capital in the form of a share in the company.
The company works in its own name under a common seal .it has separate entity from it, members. A joint stock company has been defined in a number of ways.
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Definition of Joint Stock Company:
In the other words of Prof. L.H.Haney, “Company is an artificial person created by law having separate entity with a perpetual succession and common seal”
According to Justice Lindley, a company is an association of many people who contribute money or money’s worth to a common stock and employ it for some common purpose.
More precisely, a company is defined as “a voluntary organization which is an artificial person created by law, having limited liability of its members and a perpetual succession with its capital divided into transferable shares and which has a common seal”.
Characteristics of Joint Stock Company:
the analysis of the various definition of a company brings out the following characteristic;
- A voluntary association of person.
a company is a voluntary association of a person joining hands wth a common motive. for the formation of a private company, there must be at least two members and the maximum limit is fifty. N a public company minimum number of members s seven and there is no restriction on its maximum number - An artificial person creates by law:
a company is called artificial person because it does not take birth like a natural person but it comes into existence through the law. The company possesses only those properties which are conferred upon it by its memorandum of association (charter) within the limits of power conferred by its charter , it can do all the acts as natural person can do for example:
- A company is lifeless but I have the privilege of human being.
- A company can sue or can be sued in his own name.
- A company can own and hold property in its own name.
- a company can enforce the contractual rights against other
- A company has a nationality. its registration in a country determines the nationality of a company
- A company can enter into contracts.
- Unlike a natural person:It has no physical shape. It cannot drink, eat, marry, weep, shake by hand take an oath or sent to jail like a natural person.A joint stock company in Pakistan is incorporated and registered under the companies ordinance 1984
- Separate legal entity:The company in law is in itself a person. It has a legal entity of ts own. Its existence is entirely different and separate from that of its shareholder. It bears its own name, its own seal its assets is separate and distinct form that of its members. It can sue or be sued in its own name. The shareholders cannot be sued for the debts taken by the company. The shareholders and the company are distinct from each other. The two are two people in the eyes of law.
- Limited liability:This s the most important characteristic of the company. The liability of each shareholder of the company is limited up to the value of the share purchased by him. In a case of loss of the company, shareholders cannot be called upon to pay more than the value of the shares held by him.For example, a person has purchased shares of a company having a face value of Rs. twenty thousand. In case the company fails and whatever may be the losses of the company. The shareholder will be responsible for making payment of not more than Rs. twenty thousand.
- Separate of ownership form management:The shareholders, who are the owner of the company are large in number. They are scattered all over the country. Being absentee owners, they cannot manage the affairs of the company. The share-holders therefore, elect a board of directors at its annual general meeting and entrust the management of the company to them. The ownership and management of the company are thus in two separate hands.
- Transferability of shares:The shares of a company are transferable. The shareholders of a company have full freedom to transfer their share to nay one without consulting another shareholder.
- Common seal:Since the company is an artificial person created by law, it, therefore, cannot sigh documents for itself. The law has provided the use of seal with the name of the company engraved on it. This seal has the effect of a signature of a real person.
- Perpetual existence:A joint stock company has a long life compared to other forms of business organizations. When a company is formed and commences business. It has then a continuous life. The shareholder can withdraw the capital by selling shares in the market. The existence of the company is least affected by the transferability of shares
Chief Features of Joint Stock Company:
- Formation : Generally a company is formed with the initiative of a group of members who are also known as promoters but it comes into existence after completing all the formalities prescribed in Companies Act 1956.
- Voluntary Association: a company is a voluntary association of persons joining hands with a common motive. For the formation of a private company. There must be at least two members and the maximum limits are fifty. In a public company, a minimum number of members is seven and no restriction over its maximum numbers.
- An artificial person created by law: a company is called an artificial person because it does not take birth like a natural person but it comes into existence through the law.
- Separate legal entity: The company in law is in itself a person . it has a legal entity of its own. its existence is entirely different and separate from that of its shareholders. it bears its own name , its own seal its assets are separate and distinct from that of its members. it can sue or be sued in its own name.the shareholders cannot be sued for the debts taken by the company. the shareholders and the company are distinct from each other. the two are the two persons in the eyes of law.
- Common Seal: since the company is an artificial person created by law, it, therefore, cannot sign documents for itself. the law has provided the use of seal with the name of the company engraved on it. this seal has the effect of a signature of a real person.
- Perpetual existence: A joint stock company has a long life as compared to the other forms of business organizations. when a company is formed and commences business. it has then a continuous life. the shareholders can withdraw the capital by selling shares in the market.
- Management : A joint stock company has an elected management which is managed by the elected representatives of shareholders, also known as directors of the company.
- Capital : A joint stock company can raise a large amount of capital by issuing its shares.
- Duration: A company enjoys continuous existence. the existence of the company is not affected by the transfer, the death or insolvency of the members. the members may come and the members may go., its continuity of not affected until dissolved by a process of law.
- Double Taxation: the company is subject to double taxation. First the tax is levied on the profits of the company, secondly, the shareholders pay tax on the dividends received.
- Winding up: the continuous existence of a company can come to an end only through winding up which is possible through a legal process. A liquidator is appointed for this purpose who carries the company to its end under a strict legal procedure.
Examples of Joint Stock Company:
The examples of Joint stock company are explained in separate post kindly visit.
Aim & objectives of joint stock company:
The conclusion of the Joint Stock Company
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