2. Artificial Person – Just like an individual who takes birth, grows, enters into a relationship and dies, these companies are also considered a entity or a person but is artificial guided by law and does not posses the physical attributes like that of a normal person.
3. Separate Legal Entity - Being an artificial person, a joint stock company has its own separate existence independent of its members. It means it can own property, enter into contracts and conduct any lawful business in tis own name. It can be sue and get sued by others in the court of law. The shareholders are not the owners of the property owned by the company and also they cannot be held responsible for the acts of the company.
4. Common Seal - A joint Stock Company has a seal, which is used while dealing with others or entering into a contract with outsiders. It is called a common seal as it can be used by any officer at any level of the organization working on behalf of the company. For eg a Purchase manager may enter into a contract for buying raw material from a supplier for the contract to be legal he will sign it and use the companies seal.
5. Perpetual Existence – A joins stock company existence is infinite as a long as it fulfils the requirements of law. It is not affected by the death, lunacy, insolvency, or retirement of any of its members.
6. Limited Liability – The liability of a member is limited to the extent of the value of shares held by him. For e.g. if a person owns 1000 shares of Rs 10 each then he is liable only upto Rs 10,000 towards payment of debts.
7. Democratic Management – These companies have democratic management and control. That is, even though the shareholders are owners of the company, all of them cannot participate in the management of the company. The shareholders can elect representatives from among themselves know as ‘Directors’ to manage the affairs of the company.
Merits of Joint Stock Companies
The main advantages of Joint Stock Companies are:
1. Large Financial Resources - A Joint Stock Companies is able to collect a large amount of capital through small contributions from a larger number of people. Like in public limited company shares can be offered to the general public to raise capital
2. Limited Liability - In case of a company, the liability of the members is limited to the extent of the value of shares held by them. Private property of members cannot be attached for debts of the company. This advantage attracts many people to invest their savings in the company and encourages the owners to take more risks.
3. Professional Management- Management of the company is vested in the hands of the directors, who are democratically elected by the members or shareholders. These directors as a group are known as Board of Directors these people manage the affairs of the company and are accountable to all the members. So members can elect capable persons who have sound business knowledge so that they can mange the company efficiently.
4. Large Scale Production- Due to availability of large financial resources and technical expertise it is possible for the companies to have large-scale production. This helps in reducing cost and increasing the profits.
5. Contribution to Society- A Joint Stock Company offers employment opportunities to large number of people. It facilitates promotion of various ancillary industries, trade etc. Sometimes it also donates money towards education, health and community services.
6. Research and Development - A company this large facilitates research and development for improved processes of production, new design, better quality products etc. It also invests in the training and development of the employees.
7. Reduced Tax Liability- Tax rates of the companies are lower than of partnership or sole proprietorship firms as these help in the economic growth of the country lot of tax incentives are given to these companies.
8. Discipline in the Companies- As due to compulsary statutory obligations like maintaining the minutes of the meeting, periodic auditing of accounts etc are carried out this helps in building and maintaining discipline in the organization.
Demerits of Joint Stock Companies
Some of the demerits are:
1. Difficult to Form- The formation or registration of Joint Stock Companies involves a complicated procedure. A number of legal documents and formalities have to be completed before a company can start its business and the cost of formation is very high.
2. Excessive Government Control- These companies are regulated by government through the Companies Act and other economic legislations, this affects the smooth functioning of these companies.
3. Delay In Policy Decisions- Generally policy decisions are taken at the Board meetings of the company. Further the company has to fulfill certain procedural formalities these procedures are time consuming and therefore may delay action on the decisions.
4. Concentration Of Economic Power And Wealth In Few Hands- A Joint Stock Companies is a large-scale business organization having huge resources. This gives a lot of economic and other power to the persons who manage the company. Any misuse of such power creates unhealthy conditions in the society. e.g. having monopoly over a particular business or industry or product, exploitation of workers, consumers or investors.
5. Lack of Confidentiality of Information - It is obligatory for the Joint Stock companies to file several returns, distribute final accounts to the shareholders, as so many people are involved the information can no more remain confidential and the company may suffer losses.
6. Fluctuation of Shares- The share market is never stable and anything can cause fluctuation of share like shortage or excessive shares in the market, change in government or policies leads to instability and lowers the confidence of the shareholders in the company.
Conclusion
A Joint Stock Company form of business is found to be suitable where the volume of business is large and huge financial resources are required. This form of business is also suitable for business, which involves huge risks. Certain types of business, like Pharmaceuticals, fertilizers, cements, iron, steel etc. are generally organized in the form of joint stock companies
