Joint Stock Company
1. Describe any five limitations faced by a joint stock company.
Ans: A joint stock company, despite its many advantages, faces several limitations:
● Difficulty in Formation: Establishing a joint stock company involves complex legal
formalities, including registration and compliance, making formation
time-consuming and expensive.
● Lack of Secrecy: Companies must disclose financial statements and other
information publicly. This transparency limits the ability to keep business secrets
confidential.
● Delay in Decision-Making: Important decisions require approval from the Board of
Directors or shareholders’ meetings, causing delays and missed opportunities
due to the bureaucratic process.
● Separation of Ownership and Management: Shareholders (owners) do not
manage daily operations. Instead, directors manage the company, which can lead
to a lack of personal interest, inefficiency, or conflicts between owners and
managers.
● Speculation in Shares: The trading of shares on stock markets sometimes leads
to speculation and manipulation, causing instability and loss of investor
confidence.
One-line Example:
A large manufacturing company faces delays in launching new projects because
decisions must pass through multiple levels of management and shareholder approval.
These limitations highlight challenges in governance, speed, control, and market
behavior within joint stock companies
2. Distinguish between a joint stock company and a partnership.
Ans:
Basis Joint Stock Company Partnership
Legal Status Separate legal entity distinct from its Not a separate legal entity; owners and
members. firms are one.
Number of Minimum 7 for public companies, 2 Minimum 2, maximum 10 (for banking
Members for private; unlimited maximum in business) or 50 (other businesses).
public companies.
Formation Requires complex legal formalities, Easier to form with minimal legal
compulsory registration. formalities; registration optional or less
strict.
Liability Limited to the extent of unpaid shares. Unlimited and joint liability of partners.
Management Managed by Board of Directors; Managed directly by partners; ownership
ownership and management and management are usually the same.
separated.
Transfer of Shares are transferable without Transfer requires consent of all partners;
Ownership affecting the company's existence. firm existence linked to partners.
Perpetual Yes, continues despite changes in No, a firm dissolves on death, insolvency,
Existence membership. or retirement of partners.
One-line Example:
Reliance Industries Ltd. is a joint stock company with thousands of shareholders, while
a law firm owned and managed by three partners is a partnership.
This distinction highlights that joint stock companies offer advantages of limited
liability and perpetual existence, while partnerships are simpler to form but carry
unlimited liability and less permanence.
3. “ A joint stock company is an artificial person created seal’. Explain the above statement.
Ans: "A joint stock company is an artificial person created by seal" means that a joint
stock company is a legal entity established by law through a formal registration
process. Being an "artificial person" signifies that the company does not possess a
physical existence like a natural person but is recognized by the law as a separate legal
entity distinct from its members or shareholders. This separate legal identity allows the
company to own property, enter into contracts, sue and be sued in its own name.
The term "created by seal" refers to the company's use of a common seal, which acts as
the company's official signature since an artificial person cannot sign documents
physically. The common seal, affixed to legal papers, authenticates and binds the
company to agreements and contracts.
Key features implied by this statement include:
● Separate Legal Entity: The company exists independently of the shareholders.
● Perpetual Succession: The company's existence continues regardless of
changes in membership.
● Limited Liability: Shareholders are liable only up to the amount unpaid on their
shares.
● Common Seal: Acts as the company’s official signature.
One-line Example:
Reliance Industries Limited is a joint stock company that exists as a separate legal
entity with perpetual succession and uses a common seal for official documents.
This explains how a joint stock company is an artificial legal person created by law and
represented by its common seal.
4. “From the social point of view, the joint stock company has great potential both for good
and evil”. Explain.
Ans: The joint stock company has great potential from a social point of view, both for
good and evil, due to its large scale and influence.
Social Potential for Good:
● Economic Development: Joint stock companies mobilize large capital for
industrialization, infrastructure, and technological advancement, boosting
employment and improving living standards.
● Public Welfare: They can undertake social responsibility activities like education,
healthcare, environmental protection, and community development.
● Stable Employment: By providing stable and formal employment, they contribute
to social stability and upliftment.
● Innovation and Growth: Such companies promote innovation and contribute to
the country’s economic progress and modernization.
● Contribution to Government Revenue: Through taxes and duties, they support
public finance for social development.
Social Potential for Evil:
● Monopoly Power: Some large companies may dominate markets, stifling
competition and exploiting consumers.
● Wealth Concentration: Profits and control often concentrate in the hands of a
few, increasing economic inequality.
● Environmental Damage: Improper operations can lead to pollution and resource
depletion, harming public health and ecosystems.
● Unethical Practices: Some companies might engage in corruption, exploitation of
labor, and unfair trade practices.
● Influence on Politics: Large firms may misuse their power to influence policies for
selfish gains, undermining democratic processes.
A large company like Tata Group contributes to India’s economy and society through
industrial growth and philanthropy, but the monopoly power of some firms can also
raise concerns about market fairness.
Thus, joint stock companies hold vast social power that must be exercised responsibly
to maximize benefits and minimize harm.
5. Discuss any five characteristics of a joint stock company.
Ans: A joint stock company is a voluntary association of individuals formed to carry on
business, having a distinct legal identity. Its key characteristics include:
● Separate Legal Entity: The company exists independently of its members. It can
own property, enter contracts, sue, and be sued in its own name.
● Limited Liability: Shareholders’ liability is limited to the unpaid value of the shares
they hold, protecting personal assets.
● Perpetual Succession: The company continues to exist regardless of changes in
membership due to death, insolvency, or retirement of shareholders.
● Transferability of Shares: In a public company, ownership can change hands
easily as shares are freely transferable without affecting the existence of the
company.
● Common Seal (Official Signature): Being an artificial person, the company uses a
common seal on documents to signify its approval and authenticate
transactions.
Other features include large capital resources, professional management, and
democratic control through shareholder voting.
One-line Example:
Reliance Industries Limited continues its operations despite changes in thousands of
shareholders, with ownership changes occurring through share transfers on stock
exchanges.
