What joint stock company?
When a number of individuals forms an organization known as company within the Companies Act, then it is a company. The individual in this respect are known as shareholders and by their joint contribution the capital of the firm is formed, so is the name joint-stock company. Company means a company formed and registered under this Act or an existing company.
” A company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it to a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The parsons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled in hiss share” ( Justice Mr. Lindley).
Characteristics of joint stock company
1. Legal Formation: The company is to be formed according to the procedure prescribed in Companies Act, (VIII of 1994) in Bangladesh. The registrar of companies on behalf of the government should register the company.
2. Artificial Entity: A company process independent and separate entity. Joint stock company is an artificial entity created by law that can sue and can be sued in the court. It has an independent entity separate from its owners.
3. Capital: The capital of a company is collected through joint contribution in the form of share capital.
4. Perpetual Existence: Company has a perfect existence. Its dissolution or liquidation is only possible by the court or joint decision of all or majority members.
5. Number of Shareholders: If the company is a private company, then its maximum number of shareholders is fifty and minimum two; and if the company is a public company, then the minimum number of shareholders is seven and the maximum number is the number of shareholders.
6. Limited Liability Company: The liability of the shareholders of a company is limited by the share value. Personal property of the shareholder is not liable for business debt. The word ‘Limited’ should be with the name of the company as ‘private limited’ or ‘public limited’.
7. Public Subscription and Transfer ability of Share: If the company is a public limited company, then it can call the public to subscribe to its share capital, and also its shares are freely transferable from one hand to another. The share capital of a private limited company is transferable among the shareholders.
8. Separation of Ownership from Management: In a company, the ownership is separated from management. The company is owned by the shareholders and managed by the elected directors.
9. Democratic Management: The management of the company is done in a democratic way. The directors are elected by the shareholders through direct vote.
10. Profit Distribution: The earnings of a company are partly distributed as dividend among shareholders and a portion is kept for future needs as reserves.
11. Perpetual Succession: A company can survive for a longer period. The change or death of shareholder does not harm the existence of the company.
12. Own Seal: The company has own seal as proof of its separate identity.
13. Manufacturing Operation: A company usually operates as a manufacturing unit. Large-scale operation can only be possible by a company.
14. Corporate Taxation: the tax authority taxes a company at a separate rate known as the corporate tax rate.
15. Dissolution: A company can be dissolved by the government through the court or at the discretion of the court the appeal of the shareholders or creditors or by the unanimous decision of the shareholders.
Joint stock company advantages and disadvantages
Advantages of a Joint Stock Company
Joint Stock Company is a largest organization to cater the needs of modern business. Modern business requires huge among of capital, technology, and skilled human resources. Proprietorship or partnership firm can not harness sus huge amount of resources. Joint Stock Company can only afford required huge resources. Further, this type of business organization has the following advantages.
1. Legal Status: A company processes legal status suitable for long term business operation. Shareholder’s problem does not affect the existence of the company.
2. Huge Accumulation of Capital: Joint Stock Company’ share capital is divided into smaller share value and sold to the public, and in this way, the large amount of capital can be accumulated to cater to largest scale business requirements.
3. Limited Liability: The liability of a shareholder is limited by his contributed share value and personal property is relieved from business liability. Consequently, the company can take risks for the larger project.
4. Separate Entity: A Joint Stock Company has separate legal status. So it can independently work through agents without the direct involvement of the owners.
5. Perpetual Succession: A Joint Stock Company has perpetual existence. Though on certain occasions, it is liquidated or dissolved, normal changes in the ownership do not cause any threat to the existence of the company.
6. Transfer-ability of Ownership: The ownership of a company is represented by share and the shares of a public limited company are freely transferable. The transfer-ability provides liquidity of investment to the shareholders and individual’s problem does not affect the company.
7. Efficient Management: A company can ensure efficient management. It can afford skilled managerial personnel in its operation and thus ensure efficient management.
8. Public’s Confidence: The public can put confidence on the company as it is backed by the law of the company. Consequently, the company can collect capital from the public and invest in long term perspective and vision.
9. Provision of Investment Opportunity: A company is viable investment opportunity for the general public. Individuals having capital but unable to do business may provide capital in the form of shares and return on the investment.
10. Provision of Prosperity: A successful company is a financial elite in a country. A company utilizes natural resources and provides income and employment.
Thus modern corporate types of business organizations are very useful members of the economic system of any country in the national and international context.
Disadvantages of a Joint Stock Company:
The ownership and management are separated in a company. The management is not the owner of a company. So he may not feel sufficient encouragement about the efficient running of the company. A Joint Stock Company also suffers from a number of other disadvantages, which are as follows:
1. Inefficient Administration: A company may suffer from inefficient administration. As ownership is separate from management in a corporate type firm, management may follow goals like satisfying, not maximizing and inefficient administration may develop.
2. Watering of Capital: As a company accumulates huge amount of capital, so proper utilization of capital may not be done and adequate return may be earned. Capital may be redundant in a company.
3. Monopoly may Develop: The successful company is a resourceful organization. Consequently, it may develop as a monopoly company.
4. Complex Legal Bindings: A company is a legal entity and complex legal bindings are compulsory upon a company.
5. Lack of Swift Decision: The decision-making process of a company is complex and time-consuming, and consequently swift decision making is almost impossible.
6. Conflict of Majority and Minority: The management of a company, especially, public limited company is in the hand of elected directors. In the democratic process, majority gets the control. So to have control, by arranging majority a group may dominate over the minority and detrimental conflict may arise and may stand in the way of success of the company.
7.Compulsory Liquidation: A public limited company is an organization of public interest. Any aggrieved shareholder or creditor may go to the court to save his interest and the court will take a step for the compulsory liquidation of the company. Thus the company will come to liquidation.
Thus, the company also suffers from some disadvantages.