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“A Company is an artificial person created by law”. Based on the above statement, explain the features of a Joint Stock Company.

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Joint Stock company 

A company may be defined as a voluntary association of persons having a separate legal entity, with perpetual succession and a common seal. It is an artificial person created by law. The companies in India are governed by the Indian. Companies Act, 1956. 

The capital of the company is divided into smaller parts called ‘shares’ which can be transferred freely, (except in a private company). The shareholders are the owners of the company. The company is managed by Board of Directors, elected by shareholders.

Features 

1. Incorporated association:

A company is an incorporated association, i.e. Registration of a company is compulsory under the Indian Companies Act, 1956. 

2. Separate legal entity:- 

A company is an artificial person created by law. Company has a separate legal entity apart from its members. It can enter into contracts, own property, sue and be sued, borrow and lend money etc. 

3. Formation:- 

The formation of a company is a time consuming, expensive and complicated process. 

4. Perpetual succession:- 

A company has a continuous existence. Its existence not affected by death, insolvency or insanity of shareholders. Members may come and go, but the company continues to exist.

5. Control:- 

The management and control of the affairs of the company is in the hands of Board of directors who are elected the representatives of the shareholders. 

6. Liability:- 

The liability of the shareholders is limited to the extent of the face value of shares held by them. 

7. Common seal: 

The Company being an artificial person acts through its Board of Directors. All documents issued by the company must be authenticated by the company seal. 

8. Transferability of shares:- 

Shares of a joint-stock company are freely transferable except in case of a private company. 

Merits

1. Limited liability:- 

The liability of the shareholders is limited to the extent of the face value of shares held by them. This reduces the degree of risk borne by an investor.

2. Transferability of shares:- 

Shares of a public company are freely transferable. It provides liquidity to the investor. 

3. Perpetual existence:- 

A company has a continuous existence. Its existence not affected by death, insolvency or insanity of shareholders.

4. Scope for expansion:- 

A company has large financial resources. So it can start business on a large scale. 

5. Professional management: 

A company can afford to pay higher salaries to specialists and professionals. This leads to greater efficiency in the company’s operations. 

6. Public confidence:- 

A company must publish its audited annual accounts. So it enjoys public confidence. 

Limitations

1. Difficulty information:-

The formation of a company is very difficult. It requires greater time, effort and extensive knowledge of legal requirements. 

2. Lack of secrecy:- 

It is very difficult to maintain secrecy in case of public company, as a company is required to publish its annual accounts and reports. 

3. Impersonal work:- 

It is difficult for the owners and top management to maintain personal contact with the employees, customers and creditors. 

4. Numerous regulations:- 

The functioning of a company is subject to many legal provisions and compulsions. This reduces the freedom of operations of a company.

5. Delay in decision making:- 

A company takes important decisions by holding company meetings. It requires a lot of time. 

6. Oligarchic management:- 

Theoretically a company is democratically managed but actually it is managed by few people, i.e board of directors. The Board of Directors enjoy considerable freedom in exercising their power which they sometimes ignore the interest of the shareholders. 

7. Conflict in interests:- 

There may be a conflict of interest amongst various stakeholders of a company. It affects the smooth functioning of the company. 

8. Lack of motivation:- 

The company is managed by a board of directors. They have little interest to protect the interest of the company. 

Types of Companies

 A company can be either a private or a public company.

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