1. JOINT STOCK COMPANY
Meaning of a Company: - Accounting to James
Stephenson, “a company is an association of many
persons who contribute money or money’s worth to a
common stock and employs it in some trade or business,
and who share the profit and loss arising there from”.
Under the Companies Act 1956, a Company is defined as
a company limited by shares having a permanents paid
up or nominal capital of fixed amount divided into shares
into shares, also of fixed amount held and transferrable
as stock and formed on the principles of having its
members of those shares or stock and no other persons”.
2. Definitions of a Company:- Accounting to Prof, “Joint stock
company is a voluntary association of individuals for profit,
having a capital divided into transferable share, the
ownership to which is the condition of membership”. In the
words of Justice Lindley, “By a company is meant an
association of many persons and employ it for a common
purpose. The common who contribute it or to whom it
belongs are members. The proportion of capital to which
each member is entitled is his share. Shares are always
transferable, although the right to transfer them is often
more or les restricted”.
Thus, a joint stock company is an incorporated association of
persons having a separate legal existence, with a perpetual
succession and common seal. Its capital is divided into shares
which are freely transferable and the owners of these shares
have limited liability. It is an artificial person created by law.
3. Characteristics of a Company:- The distinctive features of
the company form of organization are as follows:-
1- Separate legal existence: - A company has a distinct legal
entity independent of its members. It can own property,
make contracts and file suits in its own name. Shareholders
are not the joint owners of the company’s property. A
shareholder cannot be held liable for the acts of the
company. Similarly, members of the company are not its
agents. There can be contracts between a company and its
members. A creditor of the company is not a creditor of its
members.
4. The separate legal entity of a company was recognized in the
famous case of Salomon, v. Salomon and Co. Ltd. the facts of the
case were as follows:
Salomon farmed a company which acquired his own shoe
business. He took all the shares except six shares which he
distributed among his wife, daughter and four sons. Salomon
also purchased some debentures of the company which gave him
a charge over its assets. At the time of winding up, the
company’s assets were not sufficient enough to pay its debts.
The creditors of the company (other than Salomon) argued that
their debts should be cleared before paying Salomon for his
debentures because Salomon and the company were one and
the same person. The Court decided that after incorporation,
Solomon and Co. had an identity separate from Salomon even
though he owned virtually all the shares in the company.
5. 2- Perpetual succession:- Perpetual succession means continued
existence. A company is a creation of the law and only the law
can bring an end to its existence. Its life does not depend on the
life of its members. The death, insolvency or lunacy of members
does not affect the life of a company. It continues to exits even if
all its members die. Members may come and go but the company
goes on until it is wound up.
3- Limited liability:- As a company has a separate legal entity, its
members cannot be held liable for the debts of the company. The
liability of every member is limited to the nominal value of the
shares bought by him or to the amount of guarantee given by
him. For instance, if a member has 50 shares of Rs. 10 each, his
liability is limited to Rs. 500. Even if the assets of the company are
insufficient to satisfy fully the claims of the creditors, no member
can be called to pay anything more than what is due from him.
However, if the members of the company so desire they may
form a company with unlimited liability.
6. 4- Transferability of shares: - The capital of a company is
divided into parts. Each part is called a share. These shares
are generally transferable. A shareholder is free to withdraw
him membership form the company b y transferring his
shares. However, in actual practice some restrictions are
placed on the transfer of shares.
5- Common seal: - Being an artificial entity, a company
cannot act and sign itself. Therefore, it acts through human
beings. All the acts of the company are authorized by its
common seal. The name of the company is engraved on its
common seal. The Common seal is affixed on all important
documents as a token of the company’s approval. The
common is the official signature of the company. Any
document which does not bear the common seal of the
company is not binding on the company.
7. 6- Separation of ownership and control:- Members have
no right to participate directly in the day-to-day
management of a company. They elect their
representatives, called directors who manage the
company’s affairs on behalf of the members. Thus, the
ownership of a company is distributed amount the
shareholder while management is vested in the board of
directors. The management of a company is delegated and
centralized.
7- Voluntary association: - A joint stock company is a
voluntary association of certain persons formed to carry
out a particular purpose in common. Members of a
company can join it and leave it at their own free will.
8. 8- Artificial legal person: - A company is an artificial person
created by law. Its exists only in contemplation of law. It is
contemplation to enter into contracts and to own property in
its own name. But it does not take birth like a natural person
and it has no physical body of a natural human being.
9- Corporate finance:- The share capital of a company is
generally divided into a large number of shares of small value.
These shares are purchased by a large number of people from
different walks of life.
10-Statutory regulation and control:- Government exercise
control through company law over the management of joint
stock companies. A company is required to comply with several
legal formalities and to file several documents with the
Registrar of Companies.
9. Distinction between Company and Partnership
Both company and partnership are associations of
persons but the two differ in the following respects.
1. Formation and registration:- A company is created by law
while partnership is the result of an agreement between the
partners. In the formation of partnership no legal formalities
are involved and registration of the firm in not compulsory. A
company can be formed only after fulfilling legal formatives
and its incorporation under the Act is essential.
2. Number of members:- The minimum number of partners in a
partnership firm is two and the maximum is 10 in banking
business and 20 in other businesses. In a private company,
the minimum number of members is 2 and the maximum is
50. In a public company minimum number of members is 7
and there is no maximum limit prescribed by law.
10. 3.Legal status:- A company has separate legal entity
independent of its members but a partnership firm has no
separate legal entity different from its partners. Partners
and the firm are one and the same in the eyes of law.
Property of a partnership firm is the joint property of
partners. In a company members are not joint owners of its
property.
4.Liabilities of members:- In a joint stock company the
liability of every member is usually limited to the unpaid
money on the shares held or the amount of guarantee
given by him. But in partnership, partners are jointly and
severally liable to an unlimited extent.