Joint Stock Company

As business grows to a very large scale, it needs huge amounts of capital and a form that protects investors from unlimited risk. The Joint Stock Company meets this need. A company is a voluntary association of persons formed to carry on business, having a separate legal existence, perpetual succession and a common capital divided into transferable shares, with the liability of its members limited to the face value of the shares they hold. In India companies are formed and governed under the Companies Act, 2013.

Features

• Separate legal entity — in law a company is an artificial legal person distinct from its members; it can own property, enter contracts and sue or be sued in its own name.
• Limited liability — a member's liability is limited to the unpaid amount on the shares he holds; his personal property is safe.
• Perpetual succession — the company continues regardless of the death, insolvency or exit of members; 'members may come and members may go, but the company goes on forever.'
• Common seal / transferable shares — capital is divided into shares that (in a public company) can be freely bought and sold.
• Large membership — a private company has 2 to 200 members; a public company has a minimum of 7 with no upper limit.
• Separation of ownership and management — shareholders own the company but a Board of Directors, elected by them, manages it.
• Registration is compulsory and formation involves many legal formalities.

Merits

• Huge capital — funds are raised from a large number of shareholders and the public.
• Limited liability — attracts cautious investors.
• Perpetual succession / stability — the business is not disturbed by changes in membership.
• Transferability of shares — investors can enter and exit easily through the stock market.
• Professional / expert management — large resources allow the company to employ specialists.

Limitations

• Difficult and costly formation — many legal formalities and expenses.
• Lack of secrecy — a company must publish its accounts and file returns.
• Excessive legal regulation — continuous compliance under the Companies Act. …