What are the Characteristics of Joint Stock Company?

Definitions of Joint Stock Company:

Before going for starting a business in company form of business, the entrepreneur must passes detail knowledge about the company. A good number of authors have defined .he company in their own ways and languages. Few important among them are presented below :

(1) Prof. L. H. Haney – “A Joint Stock Company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.”

(2) James Stephens – “A company is an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business, and who share the profit and loss arising therefrom.”

(3) Chief Justice Marshall -. “A corporation is an artificial being, invisible, intangible and existing only in the eyes of the law. Being a mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence.”

(4) Indian Companies Act, 1956 – According to Section 3 of Indian Companies Act, .956, “A company means a company formed and registered under this Act or an existing company.” According to Clause (ii) of Section 3, “Existing company means a company formed .md registered under any of the previously formed Companies Act.”

Thus, a company may be defined as a legal and invisible artificial person, incorporated under an association of persons having an independent, separate legal entity along with perpetual succession and common seal, whose liability is ordinarily limited, the capital is divided into transferable shares, held by shareholders in order to earn profit.

Characteristics of Joint Stock Company:

The analysis of above definitions reveals the following characteristics of a company:

1. Association of persons:

A company is a voluntary association of persons established for profit motive. A private company must have at least two persons and the public limited company must have at least seven persons to get it registered. The maximum number of persons required for the registration in case of private company is fifty and in case of public company there is no maximum limit.

2. Artificial person:

A company is an artificial person. It is created by law. Like that of the natural person, it can own property, incur debts, file suits, enter into contracts with others under its own name. It can be sued and fined but cannot be imprisoned.

3. Separate legal entity:

A company being created under law has a separate entity from its members. Any of its members can enter into contracts with others. A member cannot bind a company by his acts or dealings with the third parties. The company can file a suit against its members and its shareholders can also sue the company. Further, a shareholder is not liable for the acts of the company even though he may be holding all the shares of that company.

4. Limited liability:

The liability of the members or shareholders is limited to the extent of the value of shares held or the amount guaranteed by them. The shareholders are not personally liable for the debts of a company beyond that limit.

5. Transferability of shares:

The shares of a public limited company are freely transferable and can be purchased and sold through the stock exchanges. A shareholder of a public limited company can transfer his shares without the consent of other shareholders. But there are certain restrictions on transferability of shares in case of private limited company.

6. Common seal:

Since a company is an artificial person, it cannot put its signature on any document. Therefore, it is statutory for every company to have a seal on which the name of the company is engraved. Affixing of seal on any document signifies the signature of the company. Of course two directors have to sign as witnesses in such .cases.

7. Separation of ownership from management:

The shareholders are the owners of the company. They are heterogeneous group of people who are widely scattered throughout the country and abroad. The shareholders elect their representatives called directors to manage the company. Thus, the company is managed by directors rather than the shareholders. This results in separation of ownership from management.

8. Perpetual succession:

The company enjoys a continuous existence. Its existence is not affected by death, lunacy or insolvency of its shareholders or directors as the case in partnership or sole proprietorship. The company can only be dissolved by the operation of law.

9. Investment facilities:

A joint stock company raises its funds through issue of shares to general public. Due to the small denomination of the shares, the company provides investment opportunities to all sections of people who want to put their surplus money in the company’s share.

10. Accountability:

A joint stock company has to function as per the provisions of the Companies Act. The accounts are to be audited by qualified auditors. Such accounts and exports are published for the information of all stakeholders. Regular and timely reports are to be submitted to the Government.

11. Restricted action:

A company cannot go beyond the powers mentioned in the abject clause of the Memorandum of Association. Therefore, its action is limited.