Joint Stock Company or Company And Characteristics of a Company

Joint Stock Company or Company And Characteristics of a Company
INTRODUCTION: The growing needs of modern large – scale business with advancement in science & technology have all needed a large amount of capital investment. Joint stock company form of business organization, which can fulfill it. When a business is established on a large scale the most suitable form of business organization is a joint stock company. The company is formed with the capital of shareholders. The capital of company is divided into equal small units, each unit being known as a share. The capital is subscribed when public buy these shares. Once the shares are sold they are not taken back until the final liquidation of the company. However, the shareholder can sell his shares to other person without affecting the share capital of the company.

• According to the company law: “A voluntary association for profit with capital divisible into transferable shares with limited liability, having a corporate body common seal”

• According to the company ordinance 1984: “A business registered under company ordinance 1984 is a company”

• Lord justice Lindsey of England: “An association of many persons who contribute money worth to a common stock and employ it for a common purpose”

• A company can be defined as: “An artificial being, intangible, invisible, but existing in contemplation of law”

A company is an artificial being but unlike partnership and sole proprietorship can enter into an agreement, can borrow all in its own name. It is run not by its unlimited number of owners known as shareholders but run by the board of directors who are elected from among its numerous shareholders on the basis of their shareholding.

The joint stock Company is a form of business has the following chief characteristics, which the other forms sole proprietorships do not enjoy.

Separate Management: In the corporation, ownership is separated from the management. Shareholders do not take part in the affairs of the business. They elect a board of directors from among themselves.

Compulsory Registration: The corporation cannot come into existence unless it is registered under the company ordinance 1984 in Pakistan. After registration, it is a certificate issued known as registration certificate. Another certificate is required known as commencement certificate necessary to start business.

Limited Liability: A company limited liability makes it quite different from other forms. The liability of shareholders is limited to the amount of their investment in the company.

Transferability of ownership: Shares of the company can be bought and sold in the open market. This act is referred to as transferability of ownership, which does not affect the life of the company.

Board of Directors: Every company must have a board of directors who are the representatives of the shareholders who elect them in the general meeting of shareholders and runs the whole affairs of the company. Charter Restrictions: The company cannot change its name, head office, objectives, authorized capital and liability. For any change, it must get a prior permission from its shareholders, civil court and the government.

Annual Financial Statement: Every public company must submit its annual financial statements to the registrar of the companies. Financial statements include income statement and balance sheet. Public Subscription: The company (public company only) should offer its shares to the general public for subscription to raise funds. Employees Benefits: Employees of the company enjoy a lot of benefits as perks, allowances, pension, gratuity, provident fund, vacation, medical etc. which other forms of ownerships cannot afford to offer.

Disadvantages of the Company Taxation
The income of the company is dually taxed, first as an income of the company and second as the income of the shareholders. The company has also to pay corporate tax, which is imposed on its form.

Organizational Expenses: A great cost is incurred in the formation of the company. A corporation has to pay registration fee. It has to pay a legal fee to its legal advisor who prepares memorandum and articles of association. Cost also incurs in the publication of prospectus in the newspapers.

Government Restrictions and Reports: All corporations are subject to the approval of the government, which imposes certain restrictions and exercise some controls over them. They must submit annual financial statements to the registrar.

Lack of Secrecy: Business and financial secrecy cannot be maintained in the company. Every year thousands of copies of financial annual statement are to be distributed to the company shareholders explaining the company’s financial and profit position.

Lack of credit standing: The company does not enjoy a high credit standing as the creditor knows that his loan cab only be recovered from the business assets of the company. The personal property of the shareholder cannot be utilized. Lack of personal interest: The administration of the company is not in the hands of the shareholders. Employees who are only interested to the extent of their assigned tasks to justify their salaries run it.

The Character Restriction: The name, capital, objective, domicile and the liability of the corporation cannot easily be changed after they have been registered. Preparation of necessary documents: The company must prepare a number of documents including memorandum of association, prospectus or a statement in lieu of prospectus


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Advantages of the Company

Limited Liability: The liability of owners, who known as shareholders is limited to the amount invested in the business. Their private property is safe and cannot be utilized in the discharged of the debt of the company.

Efficiency of management: Shareholders cannot participate in the management. The elect a board of directors who hire a team of experts, skilled and qualified, by whom company run. These competent and qualified personnel achieve efficiency of management.

Transferability of ownership: Shares of the company can be bought and sold in the open market. This act is referred to as transferability of ownership, which does not affect the life of the company. Sole proprietorship or partnership cannot enjoy this advantage . Large Size: The company has larger capital because the general public subscribes it. In a company inviting the subscription from the general public can increase capital.

Ease of expansion:
A company has an unlimited opportunity to expend its capital and operations. It can raise any amount of funds which shareholders are willing to invest. This expansion does not lead the company into liquidation.

Long Life: The company has an unlimited life. Admission, retirement insanity, bankruptcy, or death of a shareholder cannot liquidate it. Legal Entity: The company has a legal status. It can sue and be sued. It can enter into agreement in its own name because it has a legal existence.