Joint Stock Company - Features, Merits and Demerits

Introduction 

Unlike other forms, this works on a different basis as there are only a few owners in other forms but here there is no limitation as every shareholder of the company no matter how much shares he/she owns is the owner of the company. This is the real meaning of the Joint Stock Exchange.

Voluntary Association 

Person of any caste, religion can become a member of the Joint Stock Company (JSC). There is no restriction regarding the number of shares purchased by one person. After the death, shares of any shareholder, are transferred to his nominees. There is no restriction on the transfer of shares.

Registration

According to the Companies Act, 2013, registration has become mandatory. An application in prescribed format must be submitted to the Registrar of Company. Necessary registration fees are paid by the promoters. ‘Certificate of Registration’ is the registration. After the registration, an Incorporation Certificate is issued. A private limited company can immediately start his business after receiving the Incorporation Certificate. A public limited company may obtain a ‘Certificate of Commencement of Business’ which is also called Trading Certificate to start its business.

Registered Office

The address of the registered office of the company is mentioned in the Memorandum of Association. All the important documents of a company are kept in the registered office for example Register of shareholders, Annual Reports, Minutes Book, Memorandum and Articles of Association, Prospectus, Statutory Report, etc.

Artificial Legal Person

A company is an artificial person created by law. It can enter into a contract with third parties after registration. It can buy or sell the assets, borrow money, open an account in a bank, etc. are the work that can be performed by an Artificial Legal Person. Therefore, only law can create JSC and only law can wind up it.

Separate Legal Status

There is a separate legal status of JSC. It is a separate legal entity apart from its members.

Common Seal

A company is an artificial person. It does not have a physical existence like a human being. Therefore it is essential to make provision for the signature of the company. Every JSC has a common seal and it is used as a signature for JSC. A seal has the name of the company engraved on it. It is considered an important property. Therefore, a seal is kept in the custody of the company secretary. A seal is affixed on all important documents of the company but the document must be signed by a company secretary and by minimum two directors.

Limited Liability

The liability of all shareholders is limited up to the extent of the unpaid face value of shares possessed by them. Therefore, the private property of shareholders is not used for the payment of the company’s liability.

Transferability of Shares

The total share capital of a company is divided into small shares. To become a member of the company it is compulsory to purchase a share. The shares of a public limited company are freely transferable. It means a shareholder can buy or sell shares without the permission of the company. The shares of a private limited company are not freely transferable.

Separation of Ownership and Management

Shareholders are the owners of JSC. They elect their representatives to look at business activities on a daily basis and such representatives are called ‘Directors’. The directors appoint professional managers and other employees for the day to day working of the company. These employees work on a salary basis. Therefore, the ownership of JSC is with shareholder and the management is in the hands of directors. So there is the separation of ownership and management.

Perpetual Succession

It has a separate legal existence. Its existence does not depend upon its members. The death, retirement, insanity, insolvency of any member or employee does not affect the existence of the company. So, JSC enjoys perpetual succession.

Membership

In Public Limited company minimum number of members is seven but there is no limit on the maximum number of members. In a Private Limited company, a minimum number of persons are two and the maximum is 200 as per Companies Act 2013.

A Large Amount of Capital

A JSC issues shares to the public. The face value of shares is comparatively low. So it can collect a huge amount of capital. It can also accept deposits from the public and issue debentures to raise funds.

Professional Management Management of the company is in the hands of directors. They are elected representatives of shareholders. Due to large financial resources, a company can appoint highly qualified professionals, by paying an attractive salary. So the knowledge of experts is used for day to day management of the company.

More Scope for Expansion

A JSC collects a large amount of capital. Attractive salaries are paid to professional managers. Proper authorities are given to take business decisions. Shareholders are interested in getting the highest dividend. As a result, the company can undertake big and risky projects.

Public Confidence

A JSC enjoys public confidence. There is less interference of Government. In India, every JSC is governed as per the provisions of the ‘The Companies Act 2013’. This states that the company has to get its annual accounts audited by a practising Chartered Accountant. 

Relief in Taxation

A JSC plays a vital role in the economic development of the country. It requires to pay taxes of flat rate. Certain exemptions and concessions are given to the JSC, which opens branches in economically backward regions.

Expert Services

A JSC can hire the service of experts for managing business activities like Legal Advisers, Management Experts, Auditors, Consultants, etc.

Perpetual Succession

A JSC enjoys a continuous and stable life. The death, retirement, insolvency or insanity of its members does not result in the dissolution of the company.

Limited Liability

The liability of a member of a company is limited to the extent of the unpaid amount of shares held by him Shareholders are not liable for the debts of the company and there is no need to use their personal property for the purpose.

Rigid Formation

Registration of JSC is mandatory for which legal documents are very important. Registration requires heavy charges. If you want to start a Public Company then it is necessary to have the Commencement Certificate. Hence, the procedure of formation is complicated, expensive and time exhausting which are important resources for a business.

Lack of Secrecy

To protect the interest of the investor, it is mandatory to publish the books of accounts every year and disclose it is to the investors. All the important documents of JSC are available at the registered office. The competitors can understand your business formulas and tactics and try to modify and use them against you.

Delay in Decision Making Process

As an owner of the company, every shareholder has the right to participate in the management of the company. Therefore, all the business decisions have to be taken in the presence of shareholders. The procedure of conducting a meeting is a long process as it is necessary to prepare a notice of the meeting, a copy of it and send it to all the shareholders. The required documents have to be sent to each shareholder a minimum of 21 days prior to the meeting.

No Personal Contact

There are a large number of employees in JSC. Employees feel that their efforts should be appreciated by their superiors. But it is not possible in a large organization like JSC. The employees are demotivated to work hard and similarly, the Manager and the Director of the company are not able to establish personal contact with their customers.

High Cost of Management

A JSC is a commercial organization. It is ready to spend a huge amount for the advertisement. The manager gets the best salary and benefits which is a reason for high management costs.

Reckless Speculation

Company is managed by directors. Few unscrupulous directors use confidential information for reckless speculation and their gains. This results in sudden fluctuations in the process prices of shares in the Stock Exchange.

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