2. Joint Stock Company
Definition of a company
Section 2(20) of the Companies Act, 2013 defines a
company to mean a company incorporated under this
Act or under any previous company law.
Chief Justice Marshall – “A corporation is an artificial
being, invisible, intangible, existing only in contemplation
of the law. Being a mere creation of law, it possesses
only the properties which the Charter of its creation
confers upon it, either expressly or as incidental to its
very existence.”
3. Prof. Haney – “A company is an artificial person created by law,
having separate entity, with a perpetual succession and
common seal.”
Definition of the company by Lord Justice Lindley is, “A
company is a voluntary organization of many persons who
contribute money or money’s worth to common stock and
employs it in some trade or business and who share the profit
or loss arising, therefore.”
4. Features of Joint Stock Company
The main characteristics of a joint stock company are as follows:
1. Separate Legal Existence: A company has a separate legal
existence, which means that it can carry on the business activities in its
own name, and can buy and sell goods, assets, etc., in its own name. A
company can also enter into a contract with outsiders in its own name.
Also, the company and its members are separate individuals.
2. Artificial Person: Like a human being, a company does not have a
physical body; instead by law, it is an artificial person. It means that the
operations of a company are performed by the elected representatives
of the members, also known as directors. However, the business is run
in the name of the company.
5. 3. Registration: Getting registered under the Companies Act, 2013 is
legally compulsory for a company. It means that a company cannot
come into existence without registration.
4. Perpetual Succession: A company’s existence is independent of
its members. A company is formed by law and can only end by law,
i.e., the death, incapacity or insolvency of any of the members of the
company does not have any effect on its existence.
5. Common Seal: As a company is an artificial person, it cannot sign
any contract, etc., therefore, every company needs a common seal
with its name engraved on
6. 6. Transferability: A company’s capital is divided into shares and the members of the
company can freely transfer those shares. The shareholders can easily free
themselves from their membership by selling their shares. However, the shares of a
private limited company are not easily transferable.
7. Separation of Ownership and Control: The owner of a company are its
shareholders who elect their representatives, also known as directors of the
company. The directors of the company are responsible for the management and
control of business activities and they do so by appointing professional experts in
different fields.
8. Limited Liability: The liability of the members of a company is limited to the
extent of the share contributed by them in the company. For instance, if a member
has contributed ₹1,00,000 (1000 shares of ₹100 each), then the member will be
liable up to ₹1,00,000 only in case of insolvency or winding up of the business, etc.
7. ADVANTAGES OF THE COMPANY
1. Availability of large amount of Resources and Economies of Scale in
Production
Sole Trading Concerns and Partnership firms suffer due to low resources and are
mostly in need of funds. The company enables investment from an unlimited number
of shareholders (in public company). The requirement of larger funds can be solved
through increasing the number of shareholders. Joint Stock Companies are a go-to
choice for large scale businesses.
2. Restriction on Liability
The liability of the shareholders in the Company is generally limited. There exist
companies with unlimited liability too. However, compared to sole trading concerns
and partnerships where there exists unlimited liability, the companies fare better in
inviting funds. As the liability of any such person is limited to the amount that is
invested.
8. 3. Management
Companies enjoy an isolated management from that of ownership. They are
managed by the Board of Directors who are democratically elected. These are
qualified people who have sound knowledge and experience with respect to
managing the company as well as the field in which the business is operating.
4. Unaffected Existence
The company’s existence is not affected as in the manner of the other forms of
business where the death of the owner leads to varied consequences on the
ownership and continuity of business.
6. Research and Training
Companies have higher resource funds available and ability to afford to employ
specialized individuals. They do research on a large-scale and the expense will not
be too high for the company as compared to sole trading and firms.
9. 7. Spreading of Risk
Risk is a part and parcel of any business. However, a company is not
discouraged to undertake risks in business because the sharers of the
risk are high in number. This makes the risk seem insignificant. But for
sole trading concerns, any risk that ends up in loss will be a make or
break situation.
8. Societal Development
Companies enable a concentrated usage of resources and mobilize the
savings of the community in order to provide back to society products
and services that fulfill their demands and wants
10. Disadvantages of a Company
1.Cost – The initial cost of incorporation includes the fee required to file
your articles of incorporation, potential attorney or accountant fees, or the cost of
using an incorporation service to assist you with completion and filing of the
paperwork. There are also ongoing fees for maintaining a corporation.
2.Double Taxation – Some types of corporations such as a C Corporation, have
the potential to result in “double taxation.” Double taxation occurs when a company
is taxed once on profits, and again on the dividends paid to shareholders.
3.Loss of Personal “Ownership” – If a corporation is a stock corporation, one
person doesn’t retain complete control of the entity. The corporation is governed by
a board of directors who are elected by shareholders.
11. 4.Required Structure – When you form a corporation, you are
required to follow all of the rules outlined by the state in which you
filed. This includes the management of the corporation, operational
requirements and the corporation’s accounting practices.
5.Ongoing Paperwork – Most corporations are required to file
annual reports on the financial status of the company. The ongoing
paperwork also includes tax returns, accounting records, meeting
minutes and any required licenses and permits for conducting
business
12. 6.Difficulty Dissolving – While perpetual existence is a benefit of
incorporating, it can also be a disadvantage because it can require
significant time and money to complete the necessary procedures
for dissolution.
7.Lifting of Corporate Veil – From the juristic point of view, a
company is a legal person distinct from its members [Salomon v.
Salomon and Co. Ltd. (1897) A.C 22]. This principle may be referred
to as the ‘Veil of incorporation’. The courts, in general, consider
themselves bound by this principle
13. Director
As per Section 2 (34) of the Companies Act, 2013 – a “Director”is one
who has been appointed to the Board of Directors. He is the individual
who is assigned to carry out the responsibilitiesand functions of a
company's director in accordance with the Companies Act of 2013.
Who is a Company Director?
A company director is a professional person who knows how to run and
manage a company. As per Section 2(34) of the Companies Act 2013, a
directoris an individual assigned to an organisation’s noteworthy board of
an organisation. Considerably, no artificial person or entity is allowed to be
a director. Instead, a person can only play the role of a company’s director.
14. 1. Position of Director
1. Director as an Agent of the company
Directors are agents of the company as they act on behalf of thecompany.
Like agents, directors have to disclose their personal interest, if any, in any
transaction of the company.
In agency a person is employed to establish, maintain and annula relationship
of principal with third parties and he has necessary
yauthority for the same and directors also enjoy the same authority in terms
of company and third parties
2.Director as an Agent of the company
Directors are agents of the company as they act on behalf of thecompany.
Like agents, directors have to disclose their personal interest, if any, in any
transaction of the company.
In agency a person is employed to establish, maintain and annula relationship
of principal with third parties and he has necessaryauthority for the same and
directors also enjoy the same authority in terms of company and third parties
15. 1. 3.Director as Managing Partners of a company
Directors have been defined as managing partners of a companybecause, on
one hand, they are entrusted with managing the affairs of the company and
on the other hand, they are shareholders of the company. They manage the
affairs of the company for their own benefit as shareholders and for the
general benefit of company. Moreover, they perform almost all the
proprietorial functions such as allotment of shares, making calls, forfeiture
of shares, etc.
4.Director as Employees of a company
Where a director accepts employment under the company under a
separate or special contract of service, he will be treated as an employee
or servant of the company. He shall be entitled to remuneration and other
benefits admissible to employees, in addition to his remuneration as
Director under the Act.
16. Appointment of Directors
Appointment of first Directors,
Appointment at general meeting,
Appointment by the Board of Directors,
Appointment of Resident Director
Appointment of Independent Directors
17. Duties of Directors
i) Duty of Greatest Good Faith of Fudiciary Duties: The directors
of a company are fudiciary agents of their company and so they
must exercise their powers honestly and in best interest of the
company. The business opportunities should never be exploited for
their personal benefits but for the prosperity of the company.
ii) Duty of Reasonable Care, Skill & Diligence: The directors are
expected to perform with reasonable care, skill and diligence and if
not they are guilty of negligence. The actions of a directors should
be such as would be expected in similar circumstances on his
behalf
ii) Duty to Attend Board Meetings: It is not compulsory to attend
all such meetings but it is his duty to attend them whenever he is
able to do so.
18. iv) Duty to Invest Company’s Money: It is an important duty of
the directors to invest their company’s funds properly and profitably as
per the provisions of articles of association, if any , made in this regard.
v) Duty not to Delegate Functions: It is the duty of the directors to
attend personally to the business of the company in which they are
directors. They should not delegate their function unless otherwise
authorized to do so.
vi) Statutory Duties: Directors are bound to perform certain duties as
prescribed by the Companies Act of 1956:
Duty to see that the prospectus issued by the company makes a
disclosure of all the matters.
Duty to see that no prospectus is used to the public unless a copy of it
has been delivered to the Registrar of Companies for registration.
To call on extra ordinary general meeting when demanded by a valid
requisition
19. To present annual accounts and balance sheet and if any director fails to take all
reasonable steps in this regard, he is punishable in respect of each
offence with imprisonment which may extend to six month or a fine upto
rupees ten thousand or both.
Duty to forward a statutory report to every member and must also get it filed
with the Registrar. The board of directors must also call and hold the
statutory meeting, which does not apply to a private company.
Duty to provide and make good any losses in capital before recommending
any dividend.
Must prepare and place the report of the company’s affairs with the Balance
Sheet and profit and Loss.
To disclose his interest while entering into any transaction with the company.
