Formation of a Joint Stock Company-Meaning and stages

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In a similar manner, shareholders may take the corporation to court; however, they will not be held liable for the debt that the firm incurs. A joint-stock company is a company that is held jointly by its investors, who can exchange shares with one another. Despite the reason that there are particular legal differences, joint-stock corporations are the forerunners of contemporary corporations. A joint-stock company is a commercial entity that is owned by its shareholders. The joint-stock corporation’s shareholders have the ability to acquire and sell business stock.

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Additionally, the company must follow the regulations of the stock exchange on which its shares are listed, which can add to the complexity of the company. Numerous legal and financial requirements must be fulfilled before the company can be formed, and the cost of setting up the necessary documents and infrastructure can be considerable. Additionally, the company must be registered with the government, which can involve additional costs.

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In a public joint stock company, the liability of the shareholders is limited to the amount of capital they have contributed to the company. Own a share of the company, which is freely transferable and the investors have limited liability. It has a separate legal entity that is created by law and operates in its own name. Joint stock companies are created to facilitate business activities that were too costly for individuals to operate alone.

Every investor who owns even a single share is considered an owner of the joint-stock company. A company bears its own name, acts under the name, has a seal of its own and its assets are separate and distinct from those of its members. It is capable of owning property, make contracts, and file suits in its own name. The members of the company are the owners; however, they can be the creditors of the company at the same time. The shareholders are not the agents of the company, so they cannot bind it by their acts.

This can result in reckless and irresponsible management by shareholders, who are not accountable for their actions. A joint stock company also has the benefit of professional management. When founding a joint stock company, shareholders can appoint a board of directors who are responsible for overseeing the company’s operations.

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It is a multinational automotive manufacturing company with headquarters in Mumbai, India. It is a part of the Tata group of companies, a conglomerate founded by Jamsetji Tata in the late 19th century. Tata Motors manufactures a range of automobiles including cars, buses, trucks, and vans. It is the largest automobile manufacturer in India and sells its vehicles in over 100 countries.

Legal entity Joint Stock Companies:

For making large scale investment, public funds are used for operations like – production of goods, expansion, purchasing assets etc. Inventiva cover entrepreneurship articles & stories and interviews of entrepreneurs, ceo, cxo, top management, reviews of products and services & tech, ai, ml, vr, analytics news. We also carry some very important aspects of internal & external trade, international affairs which directly or indirectly affects the global as well as Indian economy. In a nutshell we cover almost everything that influence Business, Economy, Finance, Money, GDP, Growth & Development Of Country. The Indian banking and financial services company HDFC Bank was established in 1994 and had its head office in Mumbai.

Just after integration, ICICI was renamed ICICI bank, and as a result, it is currently known by the name of ICICI Bank. It works in 17 different countries and is based in Mumbai, Maharashtra, India. Tata Consultancy Services Ltd is known to be a global Indian information technology consultancy firm with its headquarters in Mumbai, Maharashtra, India.

The individual joint stock company example identity also implies that the firm can seek legal action against others and be sued by others. The separate legal identity ensures that the investors are not liable for the company. The company will have a common seal if it is a joint-stock corporation. Corporations are entities whose actions come into effect through their Board of Directors, and the common seal serves the purpose of standing for the business organization’s signature. The common seal adds to the authenticity of the company’s documents and makes them authoritative. A joint-stock company is a business that is collectively owned by its investors.

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Hence, these functions are delegated to competent managerial personnel who act as the representatives of the owners who are responsible for the day-to-day management of the company. Joint stock companies are defined in the Companies Act, 1956 as an artificial person having a separate legal identity. Some of the key features of a joint stock company are detailed below. Company is owned by shareholders and control of the operations of the company is in the hands of the board of directors elected by the owners of the company. A Joint Stock Company is a company that is owned by its investors; these shareholders own a share of the company, which is freely transferable and the investors have limited liability. Another disadvantage of a joint stock company is that it can be difficult to control.

  • Unlike a larger publicly-traded Company, the total capital of the Joint Stock Company is divided into shares; every member of the Company has shares in the business.
  • The common seal of the company works as a signature for documents and matters where the company’s approval is needed.
  • – Because the business operates on a big scale, it will likely realize economies in purchasing, management, distribution, and selling.
  • Joint Stock Company comes into existence through law and is supervised by legal authorities.
  • Such businesses can raise the required capital easily through public funds and the funds received from investors.
  • The functioning of a joint-stock company also depends on where the company is incorporated.

The formation of a company requires greater time, effort and extensive knowledge of legal requirements and the procedures involved. She will have to register her company registration of the company is compulsory as provided under the Indian Companies Act, 1956. The Companies Act requires each public company to provide a lot of information to the office of the registrar of companies from time-to-time which Kiran will have to provide. The functioning of a company is subject to many legal provisions and compulsions.

Joint-stock Company: Definition, History, and Examples

Apart from a historical relationship with unlimited liability, the terms “joint-stock company” and “corporation,” “public company,” and “business” are practically interchangeable. In other words, a contemporary company is a joint-stock firm that has been created to reduce shareholder liability. Joint-stock companies are established to finance projects that are very expensive for a person or even a country to pay. A joint stock company’s shareholders expect to receive a part of its earnings. There exist various types of business organizations that differ from each other by their capital requirements, control, nature of liability, stability, etc.

Since the joint-stock company is created by the law, the only method for it to cease is via the operation of the law. As a result, the existence of a firm has little to do with the lives of its employees. A company’s members or shareholders change, but this does not affect the company’s longevity. A Joint-stock company should publish its audited financial statement so that it can provide information to the shareholders about the company’s revenue, expenses, debt, and profitability. For example, if a company makes a loss and cannot pay its creditors, then shareholders won’t pay anything more than the value of their shares. Shareholders won’t be personally liable, and their personal property won’t be used to recover the dues of the company.

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It is similar to a corporation, but with the notable distinction that it does not provide limited liability for its shareholders. The advantages of forming a joint stock company include limited liability, the ability to raise large amounts of capital, and the ability to transfer ownership without dissolving the company. Disadvantages include increased complexity due to the need to comply with corporate regulations, divided ownership, and the possibility of shareholder disputes. – A joint stock corporation is a separate legal entity from the people that are participating.

The management of the company is for all purposes mere representatives of the owners of the company. Therefore, any major decision of the company can be taken only after following the due approvals in the Board meeting or the AGM. This often results in unnecessary delays in the decision-making process. A firm that has been founded continues to exist as long as it meets all of the legal requirements. The death, insolvency, or retirement of its members have no bearing on the organization’s existence.

This article highlights the meaning of a joint-stock company, a joint-stock company vs. a public company, and the benefits of a joint-stock company. There are many features of a joint stock company that are unknown by many. To know about some of its important features read out the points detailed below. Each investor of the joint-stock company owns a part of the company and has the right to vote regarding all company decisions.

How to identify if a company is a joint-stock corporation?

Unlike a partnership or a proprietorship firm, a Joint-Stock Company is separate from its owners. Alternately, such a firm will not depend on any owner or shareholder to decide its future course of action. However, in actual practice, some restrictions are placed on the transfer of shares.

This makes it easier for shareholders to exit the company, and for new investors to enter. Capital subscription is the third major step in creating a joint-stock company. Capital subscription involves the process of obtaining the resources required to start the company. A publicly listed joint-stock company must also obtain approval from the regulatory body that oversees securities and exchanges, such as the SEC in the US or the SEBI in India. Public joint-stock companies also require a minimum subscription before the allotment of shares. Privately held joint-stock companies, on the other hand, can start the business as soon as they receive the certificate of incorporation.

Any document which does not have the common seal of the company is not binding on the company. The Companies Act’s provisions provide sound regulation for the foundation and operation of corporations. Public confidence is increased in the rules requiring publishing specific papers, like the accounts and director’s reports. Their financial statements will be made public after being audited by a professional accountant. The public gains trust in the company’s operations to be the result.

The members of the company can join it and leave it as per their own will. Since the company’s records are public, this might, at times, lead to loss of secrecy. While it is not seen as a major disadvantage, it can restrict the freedom of the company’s activities and ventures.

To learn more on different models of businesses like a partnership firm and sole proprietorship, you can look up Vedantu’s study materials. You can also download these materials in PDF format for offline reading. Any public limited Company must have at least 7 members – there is no upper bracket. Likewise, a partnership firm is not allowed to have more than 10 active partners.

A joint stock company can have difficulty accessing capital, as it may not have the same access to public markets as larger public companies. This can make it difficult for the company to expand and invest in new projects, as it may not be able to raise the necessary funds. A holding company is like a parent company that oversees the functioning of its subsidiary companies. However, the holding company does not run the day-to-day functioning of the subsidiary company. Joint-stock companies, on the other hand, are companies that conduct business operations themselves.

The company acts as a separate legal entity, with a different identity from its owners. Claims of a common stock firm that is traded publicly can be found on authorized stock exchanges. Private joint-stock company shares can be transferred between parties, but this is often restricted by agreement, for example, to close family members.

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