Joint Stock Companies

This form of organization can raise large amount of funds as the resources of large number of people can be pooled together. In this case, the total requirement of funds of the organization is split into smaller units, each of such units being called as a ‘share’. Each such share carries a denomination value which is called as ‘face value’ or ‘nominal value’.  An individual can participate in the capital requirement of an organization by purchasing the shares of the company and he becomes the part owner of the company to the extent of his shareholding in the overall amount of capital of the company. Such shareholder can exercise his ownership rights through the voting rights offered to him.

1)      All the joint stock companies have a legal entity separate from their owner viz. shareholders. These companies can own assets, incur liabilities, enter into contracts, sue and to be sued. The shareholders of the company cannot be held liable for the actions of the company.

2)      Generally all joint stock companies are limited liability organisations and the liability of the shareholders is limited to the extent of amount of shares they undertake to purchase.

3)      Segregation of ownership and management is a typical feature of joint stock companies. In case of the companies, shareholders are owners. However, due to large number of shareholders and their wide geographical spread, it may not be possible for shareholders to exercise their ownership rights by participating in the day-to-day affairs of the company. As such, the shareholders appoint their representatives to manage the day-to-day affairs of the company.

4)      Transferability of shares is a feature of a joint stock company. A shareholder can transfer his ownership rights in the company by transferring his shares to some other person. In case of public limited companies, shares are freely transferable and such transfer can be greatly facilitated if the shares are listed on the stock exchange. In case of private limited companies, there may be some restrictions on the transfer of shares.

Advantages:

1)      The capacity of the corporate organizations to raise the funds is comparatively high. As the number of persons contributing to the requirement of funds is large, it is possible to raise large amount of funds.

2)      As the company has a separate legal entity, apart from its owners viz. shareholders, the personal property of the shareholders is generally not in danger.

3)      Transferability of shares is a facility available to the shareholders. If the shareholders want to release their investment in shares, they can transfer their shares to any other person. However, it should be remembered that in case of private limited companies, the shares are not freely transferable.

Disadvantages:

1)      The company form of organization is subjected to elaborate legal and procedural formalities to be completed not only for the purpose of formation but also for the regular operation. The basic applicable law in this connection is in the form of Companies Act, 1956. However, it should be noted that in case of private limited companies, these formalities are less rigorous in nature.

2)      Double Taxation is a typical characteristic feature of a company form of organization. The profits earned by the company are taxed in the hands of company first and when the same profits are distributed to the shareholders in the form of dividend, the same are taxed in the hands of shareholders again. This amounts to the payment of tax by both the company as well as the shareholders on the same amount of profits.