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Old Saturday, January 29, 2011
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Joint Stock Company

In the modern times the business and industry has been developed on a large scale the capital required for such industry and trade is huge which cannot be accumulated either in a sole proprietorship or a partnership organization. As a result of this change, a new form of organization has become quite popular in modern times which are known as Joint Stock Company. It is normally defined as;

“An association of many person who contribute money or money’s worth to common stock or employ it in some trade and business, and who share profit or loss arising from there.”

It means the joint stock company is a voluntary association of individual who contribute their money or profit to a common stock for carrying on a particular business. The money or money’s worth contributed by the member known as ‘share holders’ forms the capital of the company. The capital is divided into numbers of unit called share. Each share carries definite face value and is transferable in the market without any restriction or formalities.

A company as soon as incorporated takes a legal entity distinct from the share holder who composes it. It is managed by a group of persons known as directors. Directors are the representatives of share holders.

Formation of Joint Stock Company

All the joint stock companies whether public or private are governed by the company’s ordinance 1984 and must be formed according to the procedures laid down in that act. For the formulation of Joint Stock Company the following document must be submitted to the registrar, joint stock Company;

1. The list of directors along with their address.

2. the memorandum of association on which at least 7 person, who are promoters should sign in case of public limited company and two in case of private limited company. In addition of this it is also essential for the, to purchase the qualification share.

3. Articles of association duly signed as memorandum of association.

4. The consent of all the directors to act as directors.

5. A formal declaration by the secretary that all the formalities are duly completed.

6. A statement of normal capital.

Along with the above documents, registration fees, which varies with the amount of share capital is paid off to the treasury.

When the registrar of the joint stock companies is satisfied from all the formalities he will enter the name of the company in the register and will issue a certificate of incorporation. Now the company will have its separate existence.

Advantages of a Joint Stock Company

1. Huge Amount of Capital

It is in a position to raise large amounts of capital required for big business. The reasons are the limitations of liability and the ease of transferability of shares. The small value of shares allows a large number of persons to invest. So, due to limited liability and issuance of shares, large capital may be raised by a Joint Stock Company.

2. All People can Invest

In a Joint Stock Company, the shares are of different kinds so they are purchased by persons of different temperaments. The small value of shares allows the poor people also to purchase it. Besides, a company may also raise finance by the issue of debentures and bonds.

3. Limited Liability of Shareholders

The liability of shareholders is limited. It means that the risk is spread over a large number of shareholders and the possibility of hardship on a few is reduced. Secondly, if the business is going to be lost, the shareholders are not liable to loose anything from their private property.

4.Professional management

Management of a company is in the hands of the directors, who are elected democratically by the members or shareholders. These directors are known as the "Board of Directors". They manage the affairs of the company and are accountable to all the investors. So, the investors elect capable persons who have sound financial, legal and business knowledge to the board so that they can manage the company efficiently.

5. Stability of Business

The success of business also depends upon the life of the business. The Joint Stock Company is more suited in tis respect, for a company is a legal person having a perpetual succession.

6. Large-scale production

Since there is an availability of large financial resources and technical expertise, it is possible for the companies to have "large-scale" production. This enables the company to produce more efficiently and at a lower cost.

7.Research and development

Only in joint stock company form of business, it is possible to invest a lot of money on research and development so that new design, better quality products, etc. Can be achieved.

Disadvantages of a Joint Stock Company

1. Difficult to form:
The formation & registration of joint stock company involves a long and complicated procedure. A number of legal documents and formalities have to be completed before a company can start business. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. Because of all this, the cost of formation of a company is very high.

2. Excessive government control:
Joint stock companies are regulated by government through the Companies Act and other economic legislations. Especially, public limited companies are required to complete various legal formalities as provided in the Companies Act and other legislations. Non-compliance with these causes a heavy penalty. This affects the smooth functioning of the companies.

3. Delay in policy decisions:
Generally policy decisions are taken at the “Board of Directors” meetings of the company. Further, the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions.

Promotion (Memorandum of Association) & Management (Article of Association)

Memorandum of Association

The first thing in the formation of a Joint Stock Company is the preparation of the Memorandum of Association. It is a document, which sets out the constitution of the company and as such, is really the foundation on which the structure of the company rests. That is why this document has often been called the charter of the company in its relation to the outside world. The document is prepared by the promoters of the company. The memorandum of Association must contain the following clauses:

1. Name Clause

In this clause the full name of the company is shown and the last word of the name of the company must be limited. The company can adopt any name but there are certain restrictions and the words like ROYAL, IMPERIAL, EMPIRE and ESTATE etc cannot be used without the special permission of the Government.

2. Object Clause

This clause is quite important and must be very carefully drafted as it determines the activities of the company. In the object clause each and every detail of activities of the business to be carried out must be laid down. Once the object clause is completed, it become very difficult to make any amendment. The value of the shares, the allotment money must be given in detail.

3. Situation Clause

This act provides that the company must have a registered office so that the registrar may be able to send notice etc. to the Company at the registered office.

4. Liability Clause

A declaration that shares holder's liability is limited.

5. Capital Clause

This clause must contain a statement as to the amount of capital with which the company proposes to be registered and the division there of into shares at a certain fixed amount.

Articles of Association

This is another important document, which must be prepared and filed with the Registrar of the companies. The Article of Association contains rules and regulations regarding the internal working and management of the company. It defines the powers, rights and duties of Directors, shareholders and the other officers of the company. The purpose of the Article of Association is to carry out the objects set out in the Memorandum. The Memorandum limits the jurisdiction beyond which the Article of Association cannot go. The Article of Association states how the general meetings are to be held, how the voting is to be transferred, and how they are to be forfeited, how the accounts are to be kept etc. If a company does not prepare its Article of Association, it can adopt of Table A of Companies Ordinance.

The articles must be properly drafted, serially numbered and printed and then filed with the Registrar of the Joint Stock Companies. The article must be signed by the subscribers and witnessed as in the case of Memorandum. It is usual to print the Memorandum and the Article in one booklet, as the company is required to provide the copies to members on request. The articles can be altered at any time by special resolution.

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