Thursday, 27 July 2017

Joint Stock Companies | Types of Joint Stock Companies | Features of Joint Stock Companies

What is a Joint-Stock Company?

In simple words, a joint-stock company is a form of business organization where there are multiple owners.

There are 2 different types of Joint Stock Companies-
1. Private Limited Company and 
2. Public Limited Company

What is a Private Limited Company?

It is the kind of joint-stock company which cannot have more than 50 owners. Hence, in a private limited company, the minimum number of owners is 2 and the maximum no of owners are 50. 

Also in the case of a private limited company, there are restrictions on the transfer of shares. The shares of a private limited company cannot be transferred freely unlike public limited company where the shares can be transferred freely through a stock exchange.

A private limited company cannot invite the public to subscribe for its shares or debentures. A private limited company cannot accept deposits from anyone except its members (owners), directors or their relatives. 

A private limited company must have a minimum paid-up share capital of Rupees One Lakh. So before starting the business, the owners need to invest minimum One Lakh Rupees as the capital of their own pocket. All private limited companies must use the words "Private Limited" at the end of their name (Example, Xxx Pvt Ltd).

What is a Public Limited Company?

A public company is a form of joint-stock company which is not a private limited company

In the case of a public company, there is no restriction on the transfer of its shares. The shares can be transferred freely through stock exchanges. There should be a minimum of 7 members (owners) in a public company 

A public company must have a minimum paid-up share capital of Rupees 5 lakhs. In other words, owners have to invest minimum Rupees Five Lakhs from their pocket in the company

A public company can invite public to subscribe to its shares. It can invite and accept deposits from the public

The minimum number of members required to start a public company is 7. There is no maximum limit on the number of members that a public company can have. 

In the case of a public company, it is mandatory that the company must use the word "Limited" after its name. For example Xxx Limited.

A public limited company must have at least 3 directors. Directors are the people elected by the shareholders/owners to run the business on their behalf.

Features of joint-stock companies-

1. Artificial Legal person - A joint-stock company is an artificial legal person created by law. So a joint-stock company can enter into agreements with third parties. It can conduct transactions like buying and selling properties in its own name.

2. Separate Legal Identity -The company has its own separate legal identity. In the eyes of the law, the joint-stock company and the owners are two different identities.

3. Limited liability - This is one of the biggest advantages of a joint-stock company. The liability of the owners is limited. So in case, the business assets are not sufficient enough to pay off the business liabilities the personal Assets of the owners cannot be used to pay off the liabilities of a joint-stock company 

4. Common Seal - Since the company has no physical existence, there is a Common Seal which is used as a substitute for its signature.

Common Seal is an instrument very similar to paper punching instruments used for filing papers and looks like the image shown below
Image Source - Wikipedia

This instrument is embossed on documents to create an impression like the one which is shown below

Image Source - Wikipedia

5. Mandatory Registration - Registration of a Joint Stock Company is mandatory. Every Joint Stock Company must be registered with ROC (Registrar of Companies) as per the Indian Companies Act.

6. Separation of Ownership and Management - In the case of a Joint Stock Company, there is a separation of ownership and management. Shareholders are the owners of the company/business but they do not run the day to day business. The day to day running of the business is done by the Board of Directors. Board of Directors is a group of people appointed by shareholders to run the business on their behalf.

7. Minimum and the Maximum number of owners (members) - A private limited company has a minimum of 2 owners and can have a maximum of 50 owners. In case of a public limited company, minimum numbers of members are 7 and there is no upper limit to the number of members in case of a public limited company.

8. Perpetual Succession - A joint-stock company enjoys perpetual succession. The business does not come to an end in case of death, insolvency or insanity of any of its members.

Read Further - Merits/Advantages of Joint Stock Company

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