BAL BHARATI PUBLIC SCHOOL,
PITAMPURA
SESSION 2020-21
Chapter - 2
Forms of Business Organisation
5
Joint Stock Companies
Joint Stock Companies
are emerged to
overcome the difficulties
of sole proprietorship
and partnership business
organisations and to run
large scale business
enterprises
Joint Stock Companies
Definition
A company is a voluntary association of persons
having separate legal existence, perpetual
succession and a common seal
Joint Stock Companies
As per Companies Act 2013, a company means
company incorporated under this Act or any other
previous company law
Previous Company Laws:
● Act relating to companies in force before the Indian
Companies Act 1866
● The Indian Companies Act 1866
● The Indian Companies Act 1882
● The Indian Companies Act 1913
● The Registration of Transferred Companies Ordinance 1942
● The Indian Companies Act 1956
Features of
Joint Stock Companies
Features of Joint Stock Companies
1 Artificial Person
A company is created by law and exists
independent of its members and it can own
properties, borrow funds, enter into contracts in its
own name, but it is not a natural person
Features of Joint Stock Companies
2 Separate Legal Entity
As the company is a registered body, it is treated as
a legal person and its assets and liabilities are
separate from those of its owners
Features of Joint Stock Companies
3 Formation
Formation of a company is a time consuming and
expensive process as it involves the preparation of
several documents and the registration is
compulsory under Companies Act 2013 or any
other previous company laws
Features of Joint Stock Companies
4 Perpetual Succession
A company is created by law and hence only
the law can bring an end to its existence
Death, insanity, insolvency or lunacy of members
does not affect the life of the company
Features of Joint Stock Companies
5 Control
Director Board
The owners of a company are the members or
shareholders, whereas the management and
control is vested in the hands of directors
elected by the members
Features of Joint Stock Companies
6 Liability
The liability of members is limited to the extent of
their capital contribution only.
The members can be asked to contribute to the loss
only if any unpaid amount on shares held by them
Features of Joint Stock Companies
7 Common Seal
A company may or may not have a common seal
As it is an artificial person it cannot sign documents
Therefore a common seal is used for its signature
Features of Joint Stock Companies
8 Risk Bearing
The risk of loss in a company is borne by all the
shareholders, so that it will not become a heavy
burden to them
Merits of
Joint Stock Companies
Merits of Joint Stock Companies
1 Limited Liability
The public may be encouraged to invest in the shares
of a company because of limited liability
Merits of Joint Stock Companies
2 Transfer of Shares
The investors are attracted to purchase the shares of
companies as it can be converted into cash
at any time
Merits of Joint Stock Companies
3 Perpetual Existence
A company will continue to exist even if all
the members die
It can be liquidated only as per the provisions of
Companies Act
Merits of Joint Stock Companies
4 Scope for Expansion
Through the issue of shares, a company can
accumulate large amount of capital
Hence it has greater scope for expansion
Merits of Joint Stock Companies
5 Professional Management
Management of a company constitutes the Board of
Directors and supported by salaried managers
Limitations of
Joint Stock Companies
Limitations of Joint Stock Companies
1 Difficulty in formation
Due to complex formalities
Limitations of Joint Stock Companies
2 Lack of secrecy
Each public company should publish their accounts
and reports to the Registrar of Companies and to
the public time-to-time
Hence there is no secrecy in the operations of a joint
stock company
Limitations of Joint Stock Companies
3 Impersonal work environment
The large size of a company makes it difficult to
maintain personal contact with the employees,
customers and creditors
Limitations of Joint Stock Companies
4 Numerous regulations
Compulsory audit, filing of reports, statutory
meeting, obtaining certificates from Registrar,
SEBI etc. leads to complexities
Limitations of Joint Stock Companies
5 Delay in Decision making
Due to get consent from the Directors and
Share holders
Limitations of Joint Stock Companies
6 Oligarchic management
Oligarchy means “rule by a few”
The control is in the hands of a few people who may
ignore the interests of the share holders
Limitations of Joint Stock Companies
7 Conflict of Interest
Conflict between the management and share
holders may adversely affect the
progress of the company
Types of
Companies
Types of Companies
Private Co.
Public Co.
One Person Co.
1
Private Company
Private Company
• A private company means a company which:
• restricts the right to transfer the shares,
• has a minimum of 2 and maximum of 200 members
excluding the present and past employees,
• does not invite public to subscribe to its securities and
• it is necessary to use the word private limited after its
name
Privileges of a
Private Company
Privileges of a Pvt. Co.
1
Easy Formation
Only two persons are required to form a
Private Company
Privileges of a Pvt. Co.
2
No need to issue Prospectus
Public is not invited to subscribe to the shares of a
private company
Privileges of a Pvt. Co.
3
Allotment of Shares
It can allot shares and raise capital privately
No need to issue prospectus
No need of minimum subscription
Privileges of a Pvt. Co.
4
Starting of Business
It can start the business as soon as it is
incorporated
Privileges of a Pvt. Co.
5
Board of Directors
Need to have only two directors minimum
(Maximum number of directors is 15 in private and
public companies)
Privileges of a Pvt. Co.
6
Not required to keep an Index of Members
2
Public Company
Public Company
As per Companies Act, 2013, a Public Company is a
company which is not a private company.
In other words it has
• no restriction on the right of members to transfer the
shares,
• has a minimum of 7 members and no limit on maximum
members and
• permits to make any invitation to public to subscribe to
its shares and debentures.
Public Company
A private company which is the subsidiary of a
public company is treated as a public company
3
One Person Company
One Person Company
O P C means a company with only
one person as its member
Section 3(1) of Indian Companies Act 2013
Public Company
Vs.
Private Company
Differences: Public Co. & Private Co.
1 Number of Members
Public Co. Private Co.
Minimum - 7 Minimum - 2
Max - Unlimited Max - 200
Differences: Public Co. & Private Co.
2 Minimum Number of Directors
Public Co. Private Co.
Three Two
Differences: Public Co. & Private Co.
3 Index of Members
Public Co. Private Co.
Not
Compulsory
Compulsory
Differences: Public Co. & Private Co.
4 Transfer of Shares
Public Co. Private Co.
No Restriction on
Restriction Transfer
Differences: Public Co. & Private Co.
5 Invitation to Public
Public Co. Private Co.
It can invite the It cannot invite
public the public
Differences: Public Co. & Private Co.
Basis Public Company Private Company
Minimum – 7 Minimum – 2
Members
Maximum – Unlimited Maximum – 200
Minimum number of directors Three Two
Index of members Compulsory Not Compulsory
Transfer of shares No restriction Restriction on transfer
Invitation to public to subscribe
Can invite Cannot invite
to shares
Choice of Form of Business
Enterprise
• Factors to be considered while
choosing a suitable form of business
enterprise
Choice of Form of Business Enterprise
1 Cost and ease in setting up
the organization
Cost Ease
Sole proprietorship and partnership are the
most inexpensive form or organization and
having less legal formalities
Choice of Form of Business Enterprise
2 Liability
From side of investors, company form of
organization is more suitable as the risk
involved is limited
Choice of Form of Business Enterprise
3 Continuity
Sole proprietorship and partnership business
organizations lacks continuity
If the business is intended for a long period of
time, company or cooperative society form of
organizations are more suitable
Choice of Form of Business Enterprise
4 Managerial Ability
A sole proprietor may find it difficult to have
expertise in all functional areas of
management
Choice of Form of Business Enterprise
5 Capital Consideration
If the business requires huge capital, it should
be organized as a company or
co-operative society
Choice of Form of Business Enterprise
6 Degree of control
If direct control over operations and decision
making is required, proprietorship is
more preferred
Choice of Form of Business Enterprise
7 Nature of Business
For large business units, where personal
attention is not much required, company form
of organization is more suitable
Comparative Evaluation
of Forms of Organisation
Comparative Evaluation of Forms of Organisation
Sole Joint Hindu
Partners Cooperativ
Basis Propriet Family Company
hip e Society
orship Business
Compulsory
Easy –
Easy – Less Registratio registration –
Formatio Registrati
Easy legal n is expensive and
n on is
formalities compulsory complex
optional
formalities
Private Co.
Minimum Min: 2
Minimum: Max: 200
2 Minimum 2 10 adults.
Only
Members
Owner Maximum persons from No
the family maximum Public Co.
: 50
Limit Min: 7
Max: Unlimited
Ancestral
Capital Limited Limited Limited Large
property
Comparative Evaluation of Forms of Organisation
Sole Joint Hindu
Partnersh Cooperative
Basis Proprieto Family Company
ip Society
rship Business
Unlimited for
Karta and
Liability Unlimited Unlimited Limited for Limited Limited
other
members
Control &
With the All Elected
Managem Karta Elected Board
Owner partners Board
ent
Stable – Stable –
More Stable even if
Continuity Unstable separate separate legal
stable Karta dies
legal status status
