INTRODUCTION:
The increased needs of modern industry and commerce could not met by
Sole proprietorship or Partnership firms. They were favourable till the trading and
industry could be run small scale and high capital was not needed. Some other
form of organization was, therefore needed to deliver the goods. After industrial
revolution, use of machines increased, production was undertaken on a large scale,
and production was undertaken with the expectation of high demand. Capital
investment was needed much as unit became bigger, resultantly, risk element
increased; in these circumstances forms having unlimited liability did not remain
favorable. Need for establishing a type of business organization arose which could
sustain high risk. JOINT STOCK COMPANY emerged from this.
It was the joint stock type of organization which facilitated the full
utilization of technical and other innovations brought in by the industrial
revolution. The joint stock organization was already known when the industrial
revolution took place, but it was considered less efficient then the partnership form
of organization. Economist like Adam Smith thought that a joint stock company
was suitable only for such occupations as could be reduced to a routine or for those
fields where monopoly existed. For ordinary business requiring initiative and
prompt decisions the joint stock company was not considered suitable. The
misgiving has, however, been belied by recent developments. In fact, it can be said
that the industrial revolution could not have been succeeded so well, had it not
been for the company type of organization. The joint stock company was the
chariot on which the forces of Industrial Revolution came riding and
conquering.
Thus, the company organization grew out of the failings and limitations
of the earlier forms of organizations like the proprietorship or the partnership
on the one hand, and the highly increased needs of large scale industry in the
era following the Industrial Revolution on the other.
8.1 Objectives
After studying this lesson, you will be able to:
define Joint Stock Company ;
state the characteristics of Joint Stock Company;
identify the different types of Joint Stock Company;
discuss the advantages and limitations of Joint Stock Company;
suggest the suitability of Joint Stock Company as a form of Business organisation;
explain the meaning and features of a Multinational Company; and
enumerate the advantages and limitations of Multinational Company.
important
a)
Compulsory registration: Registration of a company is
compulsory under Company Act. Company does not get separate identity
without registration. Legal provisions of Company Act have been imposed
upon it, which are to be implemented. To secure incorporation, the promoter
prepares and file with the Registrar of Joint Stock Company as the necessary
documents have been compiled with.
b) Separate and perpetual existence: Company separate existence from its
members, which leads it to undertake all types of business activities like a
person. The company has a continuous existence which is not interrupted by
death, insolvency or retirement of any shareholder or director.this is a
characteristic which lends stability and long life to a company as compared
to other forms of organization.
c) Voluntary membership: Company is a voluntary association of persons
who gather with a purpose to earn profit. Members may resign voluntarily.
d) Limited liability: since the company has a separate legal existence and is
recognized a s an artificial person existing in the eye of law, its debts are its
own and the shareholders cannot be held liable for them under ordinary
circumstances. A shareholder is liable to pay only his share in the company.
If he has paid Rs. 50 towards share of Rs. 100 his liability extends only up to
further Rs. 50
e) Transfer of shares: As the capital of the company is divided into small
divisions i.e. shares, any member i.e. shareholder can transfer the ownership
of his shares easily. Share holder can sell his shares in a stock exchange and
any person can purchase them.
f) Common seal: As a company is an artificial person its existence is
expressed through its common seal. This seal exhibits the identity of a
company. By stamping the seal on important contracts, documents, and
certificates and in day-to-day transactions of company documents and
transactions become official.
g) Management by representatives: As a company has no physical existence
it is managed by the representatives elected by the share holders. This board
of directors handles the management of company on behalf of shareholder. It
means that ownership and management are separate.
h) Voting per share: Members of company are holding right to vote on the
basis of the number of shares that they own.
Data presentation
TYPES OF COMPANY:
CHARTERED COMPANY
REGISTERED COMPANY
COMPANY CREATED UNDER
SPECIAL LAW
CLASSIFICATION FROM INCORPORATION VIEWPOINT:
1) Chartered company: Company incorporated under the special order of
ruler or by charter is known as chartered company. E.g. East India Company.
This type of company cannot be incorporated in India.
2) Registered company: Companies incorporated by registering under
company law are known as registered companies.
3) Company created under special law: Companies incorporated through
special law of Parliament or legislative assembly, e.g. State Trading
Corporation.
Types of registered company:
Registe
red
Compa
ny
Number of
memeber
viewpoint
Liability
viewpoint
Registration
viewpoint
Control
viewpoint
1) Classification according to number of members viewpoint:
a) Private Company: The Company is known as private company which has
minimum two and maximum fifty members, the transfer of shares of which
is restricted and which has been prohibited to invite public to subscribe for
its shares. Private Limited words are inserted at the end of the name of such
company.
b) Public Company: The Company which is not a private is a public
company. There are seven and limitless-unlimited-members in this company.
The company is known as public company of which shares can be
transferred freely and which can invite public to subscribe for shares. The
(Limited) word has to be inserted at the end of its name.
2) Classification according to liability viewpoint:
a) Company limited by shares: The company is known as company limited
by share capital of which members liability is limited by the amount of
shares subscribed by shareholders.
b) Company limited by guarantee: The company is known as company
limited by guarantee of whose members liability remains limited by the
amount of guarantee given by them at the time of its incorporation. The
liability to pay the guarantee amount arises at the time of its liquidation.
c) Unlimited liability: The company is known as unlimited liability company
of whose members liability is unlimited like those of sole proprietorship and
partnership firm. If the debt of this company becomes more than its assets
the personal property of members is affected at the time of its liquidation.
3) Classification according to control viewpoint:
a) Holding Company: Holding company means a company which holds 50%
or more shares of other company and has the right to nominate majority or
all directors.
b) Subsidiary Company: The company is a subsidiary company of which 50%
or more shares are held by other company and whose majority or all
directors nomination right is vested into the other company.
c) Government Company: The company is known as the government
company of which at least 51% of share are held by the state government
and/or central government or are held by more than one state government.
4) Registration place viewpoint:
a) Indian Company: Indian company is company which is registered under
the Indian Company Actor under any special Act of Indian Parliament.
b) Foreign Company: Foreign company means a company which is registered
in countries other than India.
5) Deemed public company:
This company is registered as private. It was considered automatically as
public if it fulfills conditions. The provisions for this type of company cease
to exist since 2000 A.D.
BASIC COMPANY DOCUMENTS:
The memorandum of association:
Memorandum of Association is the constitution of a company. Memorandum
of Association is a fundamental document of a company. Basic conditions of
establishment of a company are included into memorandum of association.
Memorandum of Association states the authority of the company and it determines
the boundary of authority of the company. So, third party relies on the provisions
of memorandum of association while entering in to the relation with the company.
Any work done above the preview of memorandum of association is Ultra Vires.
Thus, thirs party gets idea of company and its limitations through memorandum of
association.
It is compulsory to make following provisions in the memorandum of
association according to Act:
1) Name 2) Registered office clause
5) Capital clause
3) Object clause
4) Liability clause
6) Association clause
a) Name Clause: the name of the company is mentioned in this clause. The
company is known by the name inserted in this clause and its administration is
also run in this name
b) Registered Office Clause: The company has to register the address of its
registered office with the Registrar within the time-period stipulated by the Act.
So, the Registrar and public will get information of the company address. The
address indicated in this should be written in all the documents and
correspondence.
c) Objects Clause: Information of the objects for which the company has come
into existence and for which the business will be done b the company available
through this clause. The objects of company are to be stated very clearly in this
clause and clarification has to be made about the main and the subsidiary
objects.
d) Liability Clause: What will be the liability of the members of the company is
indicated in this clause. A company with limited liability of shares has to
clarify through this clause that he liability of the members is limited up to the
shares held by them.
e) Capital Clause: the information of the authorized capital of the company and
its division into equity and preference shares is given in this clause.
f) Association Clause: Company promoters declare through this clause that they
have established the company on the basis of the memorandum of association.
This clause states that the minimum seven persons, if the company is public
and two if it is private have established the company. These persons make this
statement under their signatures.
Conclusion: From the above discussion of the merits and drawbacks of
the corporate form of organization, it may be concluded that the advantages of this
form of organization outnumber its weaknesses. Most of the evils enumerated
above arise either from management or from the misuse of this otherwise desirable
form of organization. It is also clear that despite its weaknesses the company form
of organization is best suited to those lines of business entity which require huge
capital outlay and maximum stability. For those lines of business that call for
prompt decisions, personal interest and initiative on the part of the proprietor or
proprietors and do not require very large investment for long periods, individual
proprietorship and partnership will generally be more suitable. In fact it is this
which accounts for the fact that these forms of organizations co exist with the
company organization even though the latter is undoubtedly superior to them.
Reference
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