Que: Explain the features of Joint Stock Company with its advantages and disadvantages.
Joint Stock Company:
A joint-stock company is a business organization that is owned jointly by all its shareholders.
All the shareholders own a certain amount of stock in the company, which is represented by their shares.
When dealing with business on a fairly large scale, a joint-stock company is the most suitable form of business organization.
Features of a Joint Stock Company:
Artificial Legal Person: A company is a legal entity like a natural person, it can do certain things, like own property in its name, enter into a contract, borrow and lend money, sue or be sued, etc.
Separate Legal Entity: A member of the company is not liable for the company and similarly, the company will not depend on any of its members for any business activities. iii. Incorporation: Without incorporation, a company simply does not exist.
Perpetual Succession: Members or shareholders of a company Keep changing, but this does not affect the company’s life.
Limited Liability: Only the company’s assets can be sold off to repay its own debt. The members cannot be made to pay up.
Common Seal: A common seal is an engraved seal with the company’s name on it. No document is legally binding on the company until and unless it has a common seal along with the signatures of the director
Transferability of Shares: In a joint-stock company, the ownership is divided into transferable units known as shares.
Advantages of a Joint Stock Company:
Limited Liability: The liability of the member is only limited up to the unpaid amount on their shares. Since their personal wealth is safe, they are encouraged to invest in joint-stock companies.
Transferability: The shares of a company are transferable. iii. Perpetual Succession: The death/retirement/insanity/etc does affect the life of a company. The only liquidation under the companies act will shut down a company.
Efficient Management: Very proficient, talented people are elected to the board, and this results in effective and efficient management. Also, a company usually has large resources and this allows them to hire the best talent and professionals.
Disadvantages of a Joint Stock Company:
Complex and Lengthy Procedure: One disadvantage of a joint-stock company is the complex and lengthy procedure for its formation. This can take up to several weeks and is a costly affair as well.
Lack of Secrecy and Freedom: According to the Companies Act, 2013 all public companies have to provide their financial records and other related documents to the registrar. These documents are then public documents, which any member of the public can access. A company has to follow numerous laws, regulations, notifications, etc. It not only takes up time but also reduces the freedom of a company.
Conflict of Interest: A company has many stakeholders, all these stakeholders lookout for their benefit and it often leads to a conflict of interest.