Essay on Joint Stock Companies

Essay on Joint Stock Companies!

A joint stock company is a voluntary association of persons formed for the purpose of some business for profit with common capital, divisible into transferable shares and possessing a corporate legal entity and a common seal. It is created by a process of law and can be put to an end only by a process of law. It is a legal person and is something different from its members. It is, therefore, capable of acting in its own name.


But as it has no physical existence, it must act through its agents and all the contracts entered into by its agents must be under the seal of the company. The members as such do not carry on the business of the company.

A group of persons who are individually called the directors and collectively form the Board of Directors are appointed. The company acts through the Board of Directors or subordinates appointed by the Board for the purpose.

Share capital of a company is divided into parts and each part is called a share. Every person who takes up a share or shares of a company becomes its member and continues to be a member so long as he holds even a single share. He is called a shareholder and is a part-owner of the company. But a person can be both a shareholder and a creditor of the same company and at the same time.

Essay on the Kinds of Joint Stock Companies:

Depending on the way they are formed, companies in India can be classified under the following two heads:

(i) Statutory companies:

These are the companies which are created by special acts of the Legislature, e.g., the State Bank of India, Life Insurance Corporation and State Trading Corporation. They are very small in number.


(ii) Registered companies:

These are the companies which are formed and registered under the Companies Act, 1956, or earlier companies acts. Most of the companies are of this category. They are formed by fulfilling the legal formalities laid down in the Companies Act for the purpose.

Certain documents have to be prepared and sent to Registrar of the Companies of the State in which the registered office of the company is to be situated along with the necessary fees. When the Registrar is satisfied that everything is in order and all the legal formalities have been complied with, he issues a Certificate of Incorporation which is really the birth certificate of the company.

Classification of companies on the basis of liability of members:


From the point of view of the liability of the members, companies can be divided into the following three categories:

(i) Companies limited by shares:

In these companies, the liability of the members, called the shareholders, does not exceed the unpaid amount, if any, on the shares held by them. Most of the companies fall under this category.

(ii) Companies limited by guarantee:


In these companies, the liability of the members is limited to the amount which the members undertake to contribute in the event of the winding up of the company. Companies limited by guarantee are not formed for the purpose of profit but for the promotion of art, science, culture, charity or sports, etc.

They may or may not have a share capital. If such a company has a share capital, it is governed (excepting certain provisions), by the same provisions as govern companies limited by shares.

(iii) Unlimited companies:

In this case, the liability of the members is not restricted; the members have to contribute the necessary amount to pay off the creditors of the company fully.

Private company and public company:

There are two types of registered companies- private companies and public companies. A private company is a company which has a minimum paid-up capital of Rs 1,00,000 or such higher paid-up capital as may be prescribed by the Central Government and which by its articles of association (bye-laws of the company),

(i) Restricts the right of its members to transfer shares;

(ii) Limits the number of its members to fifty (excluding employees who are members and ex- employees who continue to be members);

(iii) Prohibits any invitation to the public to subscribe for any shares in, or debentures of the company; and

(iv) Prohibits any invitation or acceptance of deposits from persons other than its (i) members, (ii) directors or their relatives.

With regard to the second condition mentioned above, it should be noted that joint holders of shares are treated as a single member.

A public company means a company which:

(i) Is not a private company; and

(ii) Has a minimum paid-up capital of Rs 5,00,000 or such higher paid-up capital as may be prescribed;

A private company which is a subsidiary of a company which is not a private company is also a public company.

Privileges of a private limited company:

The privileges and exemptions of a private limited company are as follows:

i. Only two signatories to the Memorandum are sufficient.

ii. It is not required to, nor can it, issue prospectus or file a statement in lieu of prospectus.

iii. It may commence business immediately after incorporation.

iv. It may allot shares as soon as it receives the Certificate of Incorporation as provisions with regard to “minimum subscription” do not apply to it.

v. It is not required to file a statutory report or hold a statutory meeting.

vi. Subject to Articles, only two members make a quorum.

vii. It need have only two directors.

viii. Director’s consent to act as director and his contract to take up qualification shares need not be filed.

ix. The Profit and Loss Account, though filed with the Registrar, cannot be inspected by the public.

x. Directors of private companies need not retire by rotation.

xi. Directors can be appointed by a single resolution.

xii. New shares need not be issued to the existing shareholders of the company in the first instance.

xiii. It can grant loans to its directors without the sanction of the Central Government.

xiv. Provisions regarding remuneration to managerial personnel do not apply to a private company.

xv. A person can be a managing director or a manager of more than two private companies.

xvi. Restrictions on investments or loans in the same group of companies do not apply

xvii. Changes in the directorate of a private company, even if prejudicial, can be made and the Government cannot interfere.

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