Here we always talk about start-ups, businesses, companies,and investing in different businesses.
If a person doesn’t have enough money to form a company what should he do? well, that’s where the joint stock company kicks in.
Now lets know what is a joint-stock company?
A Joint Stock Company could be a voluntary association of a group of people to hold on the business.
It’s an association of more than one person who contributes investment into the organization i.e termed as “capital”.
These people of this group are members of the corporate/organization.
The partition of the capital of every member in the joint-stock company is known as “share” and each member holding such share is termed “shareholders” and therefore the capital of the corporate/organization is known as “share capital”.
Still, confused?
Let’s breakdown this down-
In simple words, a joint-stock company is described as a business organization where more than one people are part of the organization or you can also say more than one person invested/owned the organization.
These people are called the shareholders of the joint-stock company. These shareholders own a certain amount of stock in the company known as their “share”.
Any joint-stock company involves shares, which also are encountered as public companies. The holders can either buy or sell the shares after their liking.
After understanding what’s a joint-stock company, it’s important to say that the shares in these sorts of organizations accompany obligations.
Unlike ordinary or preferred stock, where there aren’t any obligations involved, joint-stock company shares require the holders to vote directly within the company’s management decisions.
Over that, the holders can intervene in how the company’s outstanding debts are handled.
Now that we have understood what is a joint-stock company lets go through some of the features of the joint-stock company there are many features but we will go through some of the important features-
1. Artificial Person:
A joint-stock company is formed by the law-making body. It is viewed as an’ artificial human’ without any physical form.
Although a Joint Stock Company as a legal person is invisible and intangible, nearly all the rights of a natural person are enjoyed by a company.
It can sign contracts with other parties, buy and sell assets and properties, appoint people as Executives, and employee also an artificial legal person is controlled through the board members of the joint-stock company which give all its rights.
2. Separate Legal Entity:
Joint stock company has separate legal identities and representatives relative to partnerships or ownership.
If a corporation is a joint stocked, as already stated, it receives a legal identity. There is no special responsibility for a member of a joint-stock company.
Therefore, in terms of financial or business activities, the joint-stock company will not rely on its members because they will be led by the Management Board.
Its shareholders will not be held responsible for any conduct of the joint-stock company.
3. Limited Liability:
In the joint-stock company, partners are generally limited throughout liabilities by assurance or shareholding.
If a shareholder has paid the full amount owed for his stock previously, he will not be responsible for any further for the company’s debts.
Nevertheless, the responsibility for sole ownership and association is infinite, and the latter is shared and multi-faceted in the latter situation.
4. Perpetual Existence:
Unlike a corporation or single operating interest, the joint-stock company has a perpetual feature.
Once an entity is created, it will operate until it is officially liquidated for an indefinite duration. In the case of the business, the slogan “men may come and men go but I go on forever” But the demise of a sole trader concludes with a sole business issue and any members of the partnership must, in the case of merger, death, resignation or insolvency, split the firm.
5. Limited liability of shareholders:
The responsibility of the owner reflects the disparity in a joint-stock company unlike other companies or a partnership. to pay the liability of the corporation, the properties belonging to the group owners can not be liquidated in a joint-stock company.
The liability of a creditor is restricted, and there is no position for the amount of debt here.
6. Common seal:
Since a joint-stock company is an artificial legal entity, the board of directors controls its roles, meaning that approvals are common.
Standard seals are engraved and bear the name of the company, but the board of directors take its decisions.
The only things that bind the organization to a contract are the standard seal and the signatures of the members.
7. Transferability of Shares:
In joint stock company representatives of a collective corporation shall be entitled to openly move their shares as provided for by the laws of the organization of the company.
The private company representatives do not, though, obtain this right.
8. Separation of Ownership from Management:
In a joint-stock company the owners are held in a corporation, while the administration of the company’s operations is in the possession of the Management Board.
This is because a large group of owners distributed over a large area can not collaborate regularly for the corporation. Shareholders, therefore, appoint their representatives as managers to manage the affairs of the company.
9. A Large Number of Members:
In a joint-stock company, the maximum number of members is not limited. Therefore, huge capital can be brought up.
Even an ordinary man can spend his money in a large company and benefit from it.
10. Distribution of Loss and profit:
There are large numbers of shareholders in a joint-stock company. A significant number of members are at risk for total losses and benefits in profits owing to a business.
Unlike a limited partner of a public company will accept a very small failure probability that is confined to its stock’s face value.
Let’s dive into some advantages and disadvantages of a joint stock company-
Advantages:
1. The main benefit of joint-stock corporations is the limited liability of all shareholders.
2. The liability is restricted to the outstanding sum of your stock, which represents a major benefit.
3. The shares are transferable from a joint-stock corporation. It ensures that if a person wishes to sell it on the market or in a public listing, he or she can do so and transform it into cash.
4. The continuous succession of shared stocks can be perceived to be a great advantage because the assets can be exchanged.
5. To manage all the activities, a company hires a board of directors. The Board is elected by highly qualified and talented people and this results in inefficient management. Furthermore, a company often has great resources, allowing them to employ the best talents and professionals.
6. Joint-stock companies have huge budgets, and experts can be employed to carry out the activities associated with them.
Disadvantages:
1. The formation of a joint-stock company is a very long and time-consuming process.
2. It is a costly process and the main disadvantage of such enterprises. The usually long period lasts between a few weeks to a few months.
3. The Company Act requires public records of all public companies. This implies a large lack of secrecy as the ownership of a joint-stock company is public.
4. Joint stock firms comply with a variety of strict regulations and rules that greatly reduces their rights.There is also a restricted operation of joint-stock firms.
Now, let’s know how the joint stock company gets formed?
It happens mainly in 5 stages let’s get into details:
Promotion:
Promoting a company applies generally to all operations that have to be embarked on to set up a new business entity to produce or distribute some goods or services to the public.
It starts by conceiving a business idea or finding a possibility to do business,evaluating its feasibility and starting the business unit with the necessary steps.
The problem is whether or not all the basic requirements including property, building, raw materials, equipment, machinery, etc. are usable.
A promoter could be identified by an individual or group of individuals who think of a new business, determines its viability and takes the required steps to coordinate the basic requirements to create a business unit such as a company and put it in action.
He designs the concept of a business enterprise, analyzes the potential, establishes a tentative organizational model, gets the requisite people, equipment, machinery, and money together, and launches the firm.
Incorporation:
To carry out its business without registering, a sole owner or partnership corporation may be formed.
Nevertheless,a corporation can not be founded or allowed to operate without registration.
In reality, only when registered with the Registrar of Companies a company comes into being. The promoter should take the following actions:
a: Approval of Name: The name chosen for the organization will ensure that it does not suit any other company’s name. For this, the creator will fill in and forward to the Company Registrar the “Name Availability Form” together with the fees needed. At the top, the term will contain the
words ‘ Limited ‘ or ‘ private Limited. ‘When authorized, the promoter may continue with other incorporation formalities.
b: Filing of Documents: Following the approval of the name, the promoter applies for registration
to the Registrar of the Companies of the State in which the Registered Office of the company is located.
The following documents must accompany the application for registration:
* Memorandum of Association (MOA)
* Articles of Association (AOA).
* A list of members who have agreed to become Directors of the joint-stock company with their addresses etc.
* Written consent of the proposed Directors to act in that capacity, duly signed by each Director.
* A copy of the letter of authorization from the company registrar.
c: Payment of Filing and Registration Fees: The Registrar will also check all documents and if he finds them correctly he will issue a Certificate of Incorporation, which will be paid at the prescribed rate for a long term. The business is made available when the certificate is released.
So this certificate may be called as the Birth Certificate of a Joint Stock Company
Raising capital or subscription of capital:
After the company is incorporated, the next stage is to raise the necessary capital.
In the case of a private limited company, funds are raised from the members or through arrangements from banks and other sources.
In the case of a public limited company, the share capital has to be raised from the public.
Commencement of business:
In case of a private limited company, it will automatically start its business as soon as it is registered. Nevertheless,
in case of the public limited company a certificate, recognized as ‘ certificate of commencement of business’, must be received from the Registrar of
Companies before starting their service. To that effect, a document shall be sent to the Registrar of Companies with the following declaration.
Now, this is the process to form a joint-stock company.
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