Characteristics of A Joint Stock Company.A company is an association of many persons who contribute capital to a business and share profit and loss of business. The ever increasing size of business is not possible without large capital. A Joint stock company is able to raise funds in millions from the internal and external sources. Thus the company is able to overcome the problems of limited capital, unlimited liability, limited skill and short life bf business..
Definition
Companies Ordinance 1984
“It is an Incorporated association enjoys the advantages 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.’’
- E. Thomas:
“A company is an incorporated association of persons formed usually for their suit of same commercial purposes.”
Characteristics of A Joint Stock Company.
The following are the characteristics of a Joint Stock Company
- Association of Persons
A company is an association of persons joining hands with a common motive. A private limited company must have at least two persons and a public limited company must have at least seven members to get it registered. Furthermore the number of shareholders should not exceed 50 in private companies but there is no maximum limit of the members in a public limited company.
- Independent Legal Entity
The companies created under law. It has a separate legal entity apart from its members. A company acts independently of its members. The company is not bound by the acts of its members, and members do not act as agents of the company. A person can own its shares and can be its creditors too. The life of the company is independent of the lives of its members. The company can sue and be sued in its own name
- Limited Liability
The liability of its shareholders is limited to the value of shares they have purchased. In case the company incurs huge liabilities, the shareholders can only be called upon to pay the unpaid balance of their shares. The company being a separate legal entity can incur debts in its own name and the shareholders will not be personally liable for that. However shareholders oi unlimited company have unlimited liability, ‘rhe .lability of members of a company limited by guarantee is limited to be guaranteed amount.
- Common Seal
A company being an artificial person cannot put its signatures. The law requires every company to have a seal and get its name engraved on it. The seal of the company is affixed on all important documents and contracts as a token of signature. Two directors must witness frie affixed of the seal.
- Transferability of Shares
The shares of a company can be transferred by its members. Whenever the members want to dispose of the shares, they can do so by fr’lowing procedure devised for this purpose. Under Articles of
Association, the company can put certain restrictions on the transfer of shares but it cannot altogether stop it. However private companies can put more restrictions on transferability of shares, virtually making it zero.
- Separation of Ownership and Management
The shareholders of a company are widely scattered. A shareholder may like to invest money but may not be interested in its management The companies are managed by Board of Directors. The ownership and management are in two separate hands. The shareholders do not get any right to participate in company management. The right to manage company affairs is vested in the hand of directors who are elected representatives of the shareholders.
- Perpetual Existence
The company has a permanent existence. The shareholders may come or may go but the company will go on forever. The continuity of the company is not affected by death, lunacy or insolvency of its shareholders. The Company can be wound up only by the operation of law. The shares of the company may change hands a number of times but the continuity of the company is not affected at all.
Relation of Law:
A joint stock company is a creation of law or special act of the state. In Pakistan company can be formed and registered under Companies Ordinance 1984.
Capital:
There is no restrictions or maximum number of members in public company. It can attract large capital from thousands of persons A joint stock company can mobilize a large capital by issue of shares.
Change in business:
A company cannot change the nature of business except the approval of court and government which requires difficult procedure.
Control:
The government has full control on all activities of a company. Company has to follow rules of government, its activities are controlled by many government departments. It has to submit different types of reports to registrar from time to time.
Owners /number of members:
There are large number of members in Joint Stock Company Incase of public company the minimum number of members is seven and there is no limit of maximum number of members. Incase of private company the minimum number of members is two and maximum limit is fifty.
Profit:
Company earns huge profit due to large size of business. So profit is distributed among members according to their shares in capital.
Trade agreement:
Company is an artificial person so it can make the trade agreement with other business in its own name.
Taxes:
Company pays double taxes to the government. First of all company pays the tax on the total income. Secondly shareholders pay tax on their individual income.
Separate property:
The company can buy and sell property on its own name. The assets are the sole property of the company. Company has separate legal entity, so it can buy and sell property in its own name. The property of company is used for the benefits of the company.
Long life:
A company enjoys long life of business. The death or retirement of any member cannot effect the life of company. The shareholders may change but the company function normally.
Large scale business:
In Joint Stock Company capital is large and therefore its suitable for large size of business. But it is not possible in other form of business. The company produces the goods on large scale due to availability of large funds.
Audit of account:
In public limited company the qualified chartered accountant must maintain accounts. So there is no chance of fraud in such type of business. The government restrict the condition of audit the balance sheets of the company.
Formation:
A company is a corporate body. There is long and difficult process for the formation of company. Many legal documents are to be prepared and submitted to the registrar. The formation of the company passes through stages should be written in a list form
- Promotion Stage 2. Incorporation Stage
- Subscription Stage 4 Commencement Stage
(1 Promotion Stages ). (2 Incorporation stage).(3 Subscription stage). (4 Commencement stage] ,
Winding up:
A company cannot be dissolved easily. There is a separate legal process for the winding up of company. A liquidator is appointed for this purpose who carries the company to its end under the legal procedure.
