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Joint stock companies

Joint stock companies have become a major form of organisation in the recent past. This form of organisation can raise large amount of funds as the resources of larger number of people can be pooled together. In this case, the total requirement of funds of the organisation is split into smaller units, each of such units being called as a share. Each such share carries a denomination value which is called as face value or nominal value. An individual can participate in the capital requirement of an organisation by purchasing the shares of the company and he becomes the part owner of the company to the extent of his shareholding in the overall amount of capital of the company. Such shareholder can exercise his ownership rights through the voting rights offered to him.

The joint stock companies have the following characteristic features:

1.    All the joint stock companies have a legal entity separate from their owner viz. shareholders. They gain the legal status by being registered under companies act, 1956, which governs and regulates the operations of all joint stock companies in India. As legal entities, the joint stock of companies can own the incur liabilities enter into contracts, sue and be sued. The shareholders of the company cannot be held for the actions of the company.

2.    Generally all joint stock companies are limited liability organisation and the liability of the shareholders is limited to the extent of amount of shares they undertake to purchase. For example, if Mr. A undertakes to purchase 100 shares of a company of $ 100 each his liability ceases once pays $ 10000 to the company. His personal property is never in danger despite the losses and liabilities incurred by the company.

3.    Segregation of ownership and management is a typical feature of joint stock companies. In case of the companies, shareholders are the owners however due to large number of shareholders and their wide geographical spread, it may not be possible for the shareholders to exercise their ownership rights by participating in the day-to-day affairs of the company. As such, the shareholders appoint their representatives to manage the day-to-day affairs of the company. In case of joint stock companies, shareholders are the owners while directors/board of directors are the managers.

4.    Transferability of shares is a feature of a joint stock company. A shareholder can transfer his ownership rights in the company by transferring his shares to some other person. In case of public limited companies, shares are freely transferable and such transfer can be greatly facilitated if the shares are listed on the stock exchange. In case of private limited companies, there may be some restrictions on the transfer of shares.

5.    Being an artificial legal, person, the company enjoys a perceptual existence. The company can die only a legal death, after complying with the prescribed legal formalities. There is a very famous case under the companies act, where during the war, all the members of a private company, while in meeting, were killed by a bomb, but the company survived.

6.    A company is an artificial legal person which does not have a body like a natural person and hence it cannot sign any documents. However, being a legal personality, it is bound only by those documents which bear its signature, the law provides for the use of common seal. Any document having the common seal and witnessed by at least two directors is binding on the company legally.

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