- Separate Legal Entity
- Limited Liability
- Transferability of Shares
- Perpetual Succession
- Large Capital Accumulation
- Democratic Management
- Common Seal
- Voluntary Association
- Profit and Loss Sharing
- Scope for Expansion
Joint Stock Company
A Joint Stock Company is a form of business organization that is distinguished by its capacity to amass vast amounts of capital by issuing shares to the general public. These shares represent company ownership. In contrast to sole proprietorships and partnerships, a Joint Stock Company is a separate legal entity from its shareholders. This means that the company can enter into contracts, own property, sue or be sued in its own name, and bring or defend lawsuits.
To understand joint stock companies, let us take a look at the simple example of “Tata Motors Limited”, an integral part of the Tata Group, one of India’s most respected conglomerates. Established in 1945, Tata Motors has grown exponentially, venturing into various segments of the automobile industry. Its ability to raise capital through share issuance has enabled it to make strategic acquisitions, like that of Jaguar Land Rover in 2008. People who bought shares in Tata Motors have benefited in two main ways: they’ve received a share of the company’s profits (called dividends) and seen the value of their shares go up because of smart business decisions like the Jaguar Land Rover purchase. But owning shares also comes with risks. For example, if the automobile market faces challenges or there’s tough competition, the value of the shares might go down.
Explain The Features Of Joint Stock Company
One of the main features of joint stock companies is that they have their own legal existence apart from their owners or shareholders. It can own assets, incur liabilities, and engage in legal contracts independently. Other features are as follows:
- Separate Legal Existence: A joint stock company operates as an independent legal entity. This means it exists separate from its shareholders and possesses rights and responsibilities similar to an individual. For instance, a company can own property, sign contracts, and sue or be sued in its own name.
- Limited Liability: This crucial feature ensures that shareholders’ financial responsibility is restricted only to the amount they have invested in the company. In other words, if the company goes bankrupt or faces lawsuits, the personal assets of shareholders remain untouched.
- Transferability of Shares: Shareholders can effortlessly buy, sell, or transfer their shares. This provides a high degree of liquidity, enabling investors to enter or exit the company based on their financial decisions.
- Perpetual Succession: The company’s life isn’t impacted by the change in its shareholder composition. Even if a shareholder dies or sells all their shares, the company continues to operate seamlessly until it’s legally dissolved.
- Large Capital Accumulation: By publicly issuing shares, a joint stock company can gather vast amounts of capital. This financial strength allows the company to execute extensive projects and grow expansively.
- Democratic Management: The management of a joint stock company is elected by its shareholders, ensuring that the company’s direction aligns with shareholder interests. Typically, shareholders vote to select the board of directors who then oversee the company’s operations.
- Common Seal: A joint stock company has an official seal representing its signature. Any document bearing this seal indicates the company’s endorsement, making it legally binding.
- Voluntary Association: Shareholders have the liberty to enter or leave the company at their will. They can become part of the company by purchasing shares and can exit by selling them.
- Profit and Loss Sharing: Shareholders enjoy the fruits of the company’s success in the form of dividends. However, they also share the risk; if the company incurs losses, the value of their investment might decline.
- Scope for Expansion: A joint stock company, with its vast capital and distinct legal status, possesses the agility to grow its operations, diversify its portfolio, and explore new market territories.
|Separate Legal Existence
|Company functions as an independent legal entity.
|Shareholders’ liability is capped to their investment amount.
|Transferability of Shares
|Shares can be easily bought, sold, or transferred.
|Company’s existence is continuous, irrespective of shareholder changes.
|Large Capital Accumulation
|Company can raise significant capital by issuing shares.
|Management is elected by shareholders.
|The official signature of the company.
|Entry and exit based on share purchase or sale.
|Profit and Loss Sharing
|Shareholders share both profits (dividends) and risks.
|Scope for Expansion
|Company has the potential for growth and diversification.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, commodity and hence we bring you the important topics and areas that you should know:
|What is Dividend Policy
|What Is Unclaimed Dividend
|Types Of Dividend Policy
|Joint stock company
|Difference Between Partnership Firm And Joint Stock Company
|What Is Non Convertible Debentures
Explain The Features Of Joint Stock Company – Quick Summary
- Joint Stock Companies have distinct features like limited liability, ability to raise vast capital, professional management, and perpetual existence.
- A Joint Stock Company is a business entity where the capital is divided into shares, and the liability of shareholders is limited to their share value.
- These companies offer benefits like limited liability, ensuring shareholders aren’t personally liable beyond their investment, and perpetual existence, meaning they continue operations irrespective of ownership changes.
- Tata Motors Limited, part of the esteemed Tata Group, showcases the power of a Joint Stock Company. Their strategic acquisitions, like Jaguar Land Rover, were made possible by raising capital through share issuance.
- In India, these companies can be public, private, one-person, Section 8 (non-profit), or producer companies, each with unique establishment methods, registration processes, and ownership structures.
- Joint stock companies can accumulate significant capital, offer limited liability to shareholders, ensure perpetual existence, and benefit from professional management.
- They face challenges like a complex formation process, potential lack of business secrecy, and the risk of monopolistic behaviors.
- When compared to partnership firms, joint stock companies offer limited liability, have a more complex formation process, and can continue operations indefinitely.
- Alice Blue offers no-cost stock investments in the company. Most importantly, with our 15 Rs brokerage plan, you can save up to ₹ 1100 brokerage every month when compared to other brokers. We also don’t levy clearing charges.
Features Of Joint Stock Company – FAQs
What are the features of joint stock company?
A joint stock company has several features, including limited liability for its shareholders, the ability to raise large amounts of capital through the issuance of shares, professional management, and an existence that is unaffected by changes in ownership.
What is joint-stock company?
Joint stock company is a type of business entity where the capital is divided into shares. The shareholders own these shares, and their liability is limited to the value of their shares.
How is joint stock company formed?
Forming a joint stock company involves several steps, including deciding on the type of company, drafting the company’s articles of association and memorandum of association, registering with the appropriate government authority, and issuing shares to raise capital.
Is joint-stock company private or public?
A joint-stock company can be either private or public. A private one restricts the transfer of shares and doesn’t publicly trade them, while a public one can offer shares to the general public through stock exchanges.
What are the main objectives of joint-stock company?
The primary objectives include earning profits for its shareholders, ensuring sustainable growth, expanding market share, innovating, and contributing positively to the community and environment.
What are the five advantages of joint-stock company?
The five advantages of joint stock company are as follows:
- Limited Liability
- Perpetual Existence
- Transferability of Shares
- Professional Management
- Economic Development
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