Joint Stock Company

A Joint Stock Company is a type of business organization which is formed under Companies Act of the country, whose capital is contributed by members who are accorded the privilege of limited liability.

 

This means that they are liable for the debts of the company to the extent of the shareholding that they have contributed. Beyond that sum they are not liable for the company’s debts. The Joint Stock Company is the only practicable way of collecting the vast sum of capital required for the complex industrial projects of the modern world.

 

Definition of Joint Stock Company

A joint stock company may be defined as an:

A company is an artificial person created by law with a perpetual succession and a common seal. It has legal entity separate from the persons composing it. It can sue and be sued in its own name.

 

Joint stock is an incorporated association enjoys the advantage of having a large number of members who contribute money to a common pool for running large undertakings. The interest or share of each member can be purchased, sold and transferred without the consent of other members.

 

Artificial person recognized by law, with a distinctive name, a common seal, a common capital comprising transferable shares carrying limited liability and having a perpetual succession.

 

A company may be defined as a voluntary association for profit with capital divisible into transferable shares of limited liability having a corporate body and common seal.

 

Characteristics of a Joint Stock Company

The main characteristics of a company which distinguish it from other forms of organizations are as follows:

 

(1) Perpetual Existence

A company has a long life compared to other forms of business organizations. When 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 company can, however, be wound up through compliance with the provisions of Companies Act.

 

(2) Statutory Regulations

A company right from its inception has to comply with a number of statutory requirements. It has also to submit returns and report during its life time to the Government.

 

(3) Separate Legal Entity

A joint stock company is the creation of law. It has a separate legal entity of its own which is recognized by law as distinct from the persons forming it. The company enjoys many of the rights of natural person. For example, it can sue or be sued in its name. It can own and transfer the title to property.

 

(4) Financing of Joint Stock Company

A company is an effective organization for raising a large amount of capital. It issues prospectus and invites people to purchase the shares of the company. The persons who purchase shares become part owners of the company with liability limited to the value of the shares they have purchased.

 

(5) Transferable of Shares

The shareholders of a company have full freedom to transfer their shares to other without consulting other shareholders.

 

(6) Separation of Ownership from Management

The shareholders, who are the owners 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 shareholders, therefore, elect Board of Directors in the 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.

 

(7) Limited Liability

The liability of each shareholder of the company is limited only to the extent of the face value of the shares he holds or any part thereof which is unpaid.

 

(8) Rigidity of Objects

In a company form of organization, the objects and powers of the company are set out in the memorandum of association of the company. A change in the object and powers of a company can only be made after complying with the relevant provisions of the Companies Ordinance.

 

(9) Common Seal

Since the company is an artificial person created by law, it therefore cannot sign documents for itself. The common seal with the name of the company engraved on it is, therefore, used as a substitute for its signature.

 

>>> Read more about Types of Companies.

References

Ch., M. A., & Afzal, S. (2010). Advance Accounting. Lahore: Azeem Academy Publisher and Booksellers.

Sharif, H. M. (2005). Principles of Commerce. Lahore: Azeem Academy.

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *