Joint Stock Company

SL.NO. NAME ROLL.NO.

1 ARITRA BANERJEE B070543CE

2 AVINASH KUMAR B070462CE

3 B.JAGADEESH REDDY B070549CE

4 MAYANK PANWAR B070311CE

5 PERALA SANGEETH KUMAR B070587CE

6 RAGHUL RAVINDRAN B070423CE

7 SRIRAM KIRAN VALAVALA B070449CE

Definition

A Joint Stock Company is a voluntary association of

individuals for profit, having its capital divided into

transferable shares, the ownership of which is the condition

of membership.

A company is an incorporated association of persons

formed usually for the pursuit of some commercial purpose.

Section 3(1) of Indian Companies Act, 1956-Company

means a company formed and registered under this Act or

an existing company

• Existing company means a company formed andregistered under any of the previous company laws

A JSC is a type of corporation or partnership involving two or

more individuals that own shares of stock in the company.

Certificates of ownership ("shares") are issued by the company

in return for each financial contribution.

The shareholders are free to transfer their ownership interest at

any time by selling their shareholding to others.

A voluntary association of persons who generally contribute

capital to carry on a particular type of business.

Persons who contribute capital become members of the

company.

Company has a legal existence separate from its members,

which means even if its members die, the company remains in

existence.

This type of company needs huge capital investment.

The total capital of a JSC is called share capital and it is

divided into a number of units called shares.

Members are also called shareholders.

In 1250, in Toulouse, France, Bazacle Milling Company

traded 96 shares whose value depended on the profit of the

company.

In 1288, a Swedish company, Stora documented transfer of

shares.

In modern history, the earliest recognized company was the

British East India Company, was one of the most famous joint-

stock companies.

In 1602, the Dutch East India Company issued shares on

the Amsterdam Stock Exchange.

The first JSC to be implemented in the America were

The Virginia Company and The Plymouth Company.

It‟s a separate legal entity, distinct from the people engaged in it.

It involves three sets of economic actors:

1. shareholders - provide financial capital in return for a share in

the profits,

2. directors – Their role is to:

protect the interest of the share holders,

to ensure the company is working within the law

it does not trade in cases of bankruptcy.

3. employees - who work but, are legally not a part of the

company

Compulsory Incorporation

a voluntary association of persons formed and incorporated

under the existing law.

Artificial person

created by legal process and not by natural birth. Even though

it has no natural personality, it has legal personality

Common Seal

every company by law must have a common seal on which its

name is engraved. The common seal can serve as its

signature.

Characteristics of JSC (Contd.)

Perpetual succession

men may come and men may go but a company remains

forever. It can be wound up only under the provisions of the

act.

Limited liability

usually the liability of members of a company is limited to

the extent of uncalled or unpaid value of shares held by them.

Share capital

1. The capital required by the company is raised by issuing

shares.

2. The member who holds the shares of a company can transfer

its ownership any other person, without the company‟s

permission.


Separation of ownership and management

1. The shareholders do not take active part in the everyday

affairs of the company.

2. Elected representatives known as Directors, who with the

help of managers and employees manage the company.

Legal Entity

1. It has separate legal existence compared to its members.

2. The members cannot be personally held responsible for the

acts of the company.

Large membership

Owned by a larger number of members.


Promotion is the discovery of ideas and organization of funds,

property and skill to run the business for the purpose of earning

income.

Steps involved

1) Idea about Business

2) Investigation- make out plans as regards to the

availability of resources like capital, means of

transportation, labour, electricity, gas ,water, etc.

3) Assembling various Factors- like arrangement of

licences, copyrights, employment of necessary

employees, etc.

4) Financial Sources

5) Preparation of Essential Documents like Memorandum,

Articles and Prospectus of company.

The promoters carryout these various activities to give the

company its physical shape in the form of

• Giving a name to the company

• Sanctioning of Capital Issue

The second stage for establishment

1)Filing of Document: Following documents are to be

submitted by the promoters in the Registrar‟s office

a) Memorandum of Association – indicates

name, address, authorized capital etc.

b) Articles of Association – contains

laws and rules for internal control and management of a

company.

c) List of Directors -

list of the names, occupations, addresses, along with the

declaration of director.

d) Written Consent of Directors

e) Declaration of Qualifying Shares-

A declaration certificate showing that the directors have take

n up qualifying shares and have paid up the money or pay it in

near future to the registrar.

f) Prospectus

g) Statutory Declaration – stating that

all legal formalities have been completed.

2) Payment of Registration Fee -

the registration fee is paid to the Registrar for

• Application and documents filing fee

• Registration fee

• Stamp fee on Memorandum and Articles

3) Certificate of Incorporation -

If the registrar finds all the documents right, he issues

the certificate of incorporation to promoters.

After getting certificate of incorporation, the next stage

is to make arrangement for raising capital by

issuing

i) Shares

ii) Debentures

iii) Savings CERTIFICATE OF COMMENCEMENT – requires

the fulfilment of following conditions

a) Issue of Prospectus:

A company has to issue prospectus for selling shares and

debentures to public.

b) Allotment of Shares

c) Minimum Subscription -

certified that the shares have been allotted up to an amount, not

less than the minimum subscription.

The Fourth and Final Stage

After verifying the foregoing documents, the registrar

issues the certificate of commencement of business

1) On the basis of Incorporation

a) Chartered Companies

i) Such companies are incorporated under a Royal Character

(order) issued by the King or Queen or Head of the State.

ii) Such companies have exclusive rights, powers and

privileges under the royal charter.

Example: East India Company, Bank of England

2) Statutory Companies

i) Such companies are formed under the special act passed by

the Parliament or State Legislature.

ii) The powers which can be exercised by such companies are

defined by the Acts that constitute them.

Example: Reserve Bank of India, State Bank of India, Life

Insurance Corporation

3) Registered Companies

i) A company incorporated under the Indian Companies Act,

1956 is called Registered Company.

ii) The powers exercised by such companies are defined by the

Companies Act and Memorandum of Association.

iii) A registered company can be a Private Ltd. Company or a

Public Ltd. Company

On the basis of liability of its members

1)Companies Limited by Shares

i) the liability of the members is limited to the extent of the

unpaid value on shares.

ii) Such companies may be a Public limited company or a

Private limited company

2) Companies Limited by Guarantee

i) Member guarantees to pay a fixed sum of money (specified

in the memorandum) at the time of liquidation of the

company for payment of companies liabilities.

ii) Such companies are formed without a share capital for non –

trading (non – profit) purpose.

iii) Depend on entrance and subscription fees as they do not

have share capital.

3) Unlimited Companies

i) The liability of the members is unlimited.

ii) In the event of winding up of the company. the private

property of the member can be used to pay the debts of the

firm.

iii)Due to the high risk involved, such companies are not found

in India.

On the basis of Membership

1) Private Limited Company

A private limited company is the one which by its articles

i) Limits the maximum number of its members to 50, minimum

being 2.

ii) Places some restriction on the transfer of its shares

iii) Prohibits any invitation by prospectus or otherwise to the

general public to subscribe to any of its shares or debentures

iv) A private company must used the word „Private Limited‟

after its name.

2) Public Limited Company

i) It must have atleast 3 directors – 1/3rd of the directors are

permanent and 2/3rd are subject to retirement by rotation out of

which 1/3rd retire every year.

ii) Shares can be freely transferred in a public company.

iii) In case of a public company Statutory Meeting is

compulsory.

On the basis of Ownership

1) Government Company

i) Company in which not less than 51% of the paid – up share

capital is held by the Central Government and / or by any

State Government(s) or partly by the Central Government

and partly by one or more State Governments.

ii) Follows provisions of the Indian Companies Act, 1956.

Examples: Hindustan Machine Tools, Oil and Natural Gas

Commission etc.

2) Foreign Companies:

i) company which is registered in one country but carries out

its operations in India.

On the basis of Shareholding

1) Holding Companies

i) A company which controls another company by

holding a minimum 51% of shares and thereby

controlling the composition of the board of the

company.

2) Subsidiary Companies

i) A company in which another company holds a

minimum of 51% of share capital i.e. holding

company is known as subsidiary company.

Private Limited Company Public Limited Company

1. Membership:

Minimum membership 2, Maximum

membership 50

Minimum membership 7, Maximum

membership unlimited

2. Formation

Comparatively simple, certificate of

incorporation is adequate

Comparatively difficult as the procedure

is lengthy.

3. Number of Directors:

It must have at least two directors It must have at least three directors

4. Transfer of Shares:

The shares are not freely transferable Shares are freely transferable.

5. Issue of Prospectus:

It is allowed to issue prospectus It can issue prospectus

6. Commencement of Business:

It can start the business after the

receipt of certificate of incorporation.

It requires trading certificate for starting

business

7. Suitability:

Suitable for business on a small scale Suitable for large – scale business.

8. Invitation:

It cannot invite public to subscribe for

securities of the company

It invites public to purchase securities of

the company.

9. Allotment:

It can allot shares immediately after

incorporation

Shares cannot be allotted unless

minimum subscription is collected.

10. Qualification shares:

The directors need not hold

qualification shares

The directors have to purchase some

qualification shares to become the

director.

11. Directorship:

There is no restriction on the number

of directorship

A director cannot be a director of more

than 20 companies

12. Quorum:

Two members present in the meeting is a

quorum at general meeting

Five members present in the meetings is

a quorum at general meeting.

A) There are three type of companies -Private Limited, Public

Limited and Government companies on the basis of ownership

B) Two types of companies - Indian and Foreign on the basis of

nationality.

1) Private Limited Company

i) can be formed by at least two individuals having minimum

paid–up capital of not less than Rupees one lakh.

ii) total membership of these companies cannot exceed 50.

iii) shares allotted to its members are also not freely

transferable between them.

iv) not allowed to raise money from the public through open

invitation.

v) are required to use “Private Limited” after their names.

examples : Combined Marketing Services Private Limited,

Indian Publishers and Distributors Private Limited Limited,

etc.

2) Public Limited Company

i) Min of 7members are required, no restriction on max no of members

ii) must have minimum paid–up capital of Rs. 5 lakhs.

iii) shares allotted to the members are freely transferable.

iv) can raise funds from general public through open invitations by selling its shares or accepting fixed deposits.

v) required to write either „public limited‟ or „limited‟ after their names.

Examples :Hyundai Motors India Limited, Steel Authority of India Limited, Jhandu Pharmaceuticals Limited etc.

3) Government Company

i) the Govt (either state or central Gvt or both) holds a majority share capital i.e., not less than 51%.

ii) companies having less than 51% share holding by the govt can also be called Govt companies provided control and management lies with the Govt.

examples : Mahanagar Telephone Nigam Limited, Bharat Heavy Electricals Limited, etc.

4) Indian Companyi) A company having business operations in India and registered

under the Indian Companies Act, 1956

ii) company may be formed as a public limited, private limited or government company.

5) Foreign Company

i) a company formed and registered outside India having business operations in India.

Indian Companies Act 1956 defines share as “a share in the

share capital of a company and includes stock except when a

distinction between stock and shares is expressed and

implied”.

Owned capital of a company divided into a large number of

equal parts or units. Each such part having the same face value

is called share.

1.Equity Shares(Ordinary shares):

Equity shares are those shares which do not have, preferential rights with regards to

(1) Payment of dividend

(2) Repayment (return) of capital, in case of winding up of the company.

2.Preference Shares:

Preference shares are those shares which have preferential rights over the equity shares with regards to:

(1)Repayment of capital in the event of liquidation / winding up of the company.

(2)Payment of dividend.

(I) On the basis of participation:

(a) Participating Preference Shares

(b) Non – participating Preference Shares

(II) On the basis of right to accumulate dividend:

(a) Cumulative Preference Share

(b) Non–Cumulative Preference Shares:

Classification of Preference Shares:

(III) On the basis of Redemption:

(a) Redeemable Preference Shares

(b) Irredeemable/Non – redeemable Preference Shares

(IV) On the basis of Conversion:

(a) Convertible Preference Shares

(b) Non – Convertible Preference Shares

Classification of Preference Shares:

(Contd.)

3.Bonus Shares:

A part of the company‟s profit is transferred to reserves. Out of such reserves a company issues bonus shares. Such shares are issued to the equity share holders of the company free of charge. Infact bonus shares are also equity shares.

4.Deferred Shares / Founder Shares / Management Shares:

These shares are issued to the promoters of the company. They rank last of all shares in respect of payment of dividend and repayment of capital. Deferred shares are usually of a lower face value. Only private companies can issue deferred shares.

5.Qualification Shares:

The articles of a company usually require a director to

hold certain number of shares to be eligible as a director. Such

shares are called qualification shares.

The directors must obtain qualification shares within 6

months from his appointment as a director. If he does not

purchase the qualification shares within the prescribed period

he ceases to be the director of the company. He can purchase

the shares from the company itself or from the stock market.

(a)Statutory Meeting

The statutory meeting is held to inform the shareholders inrespect of matters relating to:

Allotment of shares

Receipts and payments made by the company, etc.

Incorporation of the company.

Details of preliminary expenses.

Details of the contracts concluded by the company or changesin the existing contract.

Details of further prospects of the company

Any special matters which require approval of theshareholders is placed before them at this meeting.

(b)Annual General Meeting

Every company shall in each year hold (in addition to any

other meetings) a general meeting of its shareholders. The

purpose of holding such meeting is to review the progress

and prospects of the company and to elect directors and

auditors, as the case may be.

(c)Extra Ordinary General Meeting

It is general meeting which is held between two annual

general meetings. This meeting is called to discuss

important and urgent matters which cannot be postpone till

the next annual general meeting

A stock exchange is an entity that provides "trading" facilities

for stock brokers and traders to trade stocks, bonds, and

other securities.

Stock exchanges also provide facilities for issue and

redemption of securities and other financial instruments, and

capital events including the payment of income and dividends.

Securities traded on a stock exchange include shares issued by

companies, unit trusts, derivatives, pooled investment products

and bonds.

1.Raising capital for businesses

2.Mobilizing savings for investment

3.Facilitating company growth

4.Profit sharing

5.Corporate governance

6.Creating investment opportunities for small investors

7.Government capital-raising for development projects

8.Barometer of the economy

Roles of Stock Exchange:

Rank Economy Stock ExchangeMarket Capitalization

(USD Billions)

Trade Value

(USD Billions)

1United States

and EuropeNYSE Euronext 15970 19813

2United States

and EuropeNASDAQ OMX 4931 13439

3 JapanTokyo Stock

Exchange3827 3787

4 United KingdomLondon Stock

Exchange3613 2741

5 ChinaShanghai Stock

Exchange2717 4496

6 Hong KongHong Kong Stock

Exchange2711 1496

7 CanadaToronto Stock

Exchange2170 1368

8 IndiaBombay Stock

Exchange1631 258

9 IndiaNational Stock

Exchange of India1596 801

10 Brazil BM&F Bovespa 1545 868

11 Australia

Australian

Securities

Exchange

1454 1062

12 Germany Deutsche Bores 1429 1628

13 ChinaShenzhen Stock

Exchange1311 3572

14 SwitzerlandSIX Swiss

Exchange1229 788

15 SpainBME Spanish

Exchanges1171 1360

Partnership Joint Stock Company

1. Meaning:

Here 2 or more people come together for

doing some business and making profit

It is voluntary association, artificial person

created by law having a common seal and

perpetual succession

2. Formation:

Relatively easy, less legal formalities

involved

Formation difficult, too many legal

formalities involved.

3. Capital:

It can raise limited capital due to limitation

on the number of members and their

capacity

It can raise large capital due to large

members

4. Liability:

Liability of partners is unlimited joint and

several

Members liability limited to the face value

of shares

5. Ownership and Management:

There is no difference in ownership and

management

There is no difference in ownership and

management

6. Flexibility:

More flexible, compared to Joint Stock

Companies

Less flexible compared to partnership firm

7. Continuity and Stability:

Lacks continuity and stability, business may

come to an end with death, insolvency and

insanity of partners

Joint stock company is continuous and

stable, business does not come to an end

with death insolvency or insanity of

partners

8. Business Secrecy:

Can be maintained to a certain extent No business secrecy

9. Government Regulation:

Minimum government regulation Strict and excessive government regulation

10. Taxation:

Less compared to joint stock companies Subject to heavy taxation

11. Decision making:

Quick decision making Delay in decision making

12.Economies of scale:

Less economies of scale as compared to Joint Stock

Companies

Enjoys economies of scale as it undertakes

business on a large scale

13.Bargaining Power:

Generally weak bargaining power

Strong bargaining power

14.Contractwithcustomers &employees:

Close contact with customers and employees No contacts with customers and employees

15.Legal status:

No legal status Possesses and a legal status

16.Act:

Governed by Partnership Act, 1932 Governed by Companies Act, 1956

(i) Large financial resources

(ii) Limited Liability

(iii) Professional management

(iv) Large-scale production

(v) Contribution to society

(vi) Research and Development

(vii) Bargaining Power

(viii) Government Revenue

(ix) Economic Development

(x) Public Confidence

(xi) Long Life

(i) Difficult to form

(ii) Excessive government control

(iii) Delay in policy decisions

(iv) Concentration of economic power and wealth in few hands

(v) Labour Disputes

(vi) Lack of Responsibility

(vii) Lack of Secrecy

(viii) Double Taxes

(ix) Lack of contact with customers

(x) Lack of contact with employees

(xi) Conflicts of Interest

(xii) Not suitable for all types of business

where the volume of business is large

huge financial resources are needed

suitable for businesses which involve heavy risks

which require public support and confidence

Examples: production of pharmaceuticals, machine

manufacturing, information technology, iron and

steel, aluminum, fertilisers, cement