JOINT STOCK COMPANYMeaning of a Company: - Accounting to James Stephenson, “a company is an association of many persons who contribute money or money’s worth to a common stock and employs it in some trade or business, and who share the profit and loss arising there from”. Under the Companies Act 1956, a Company is defined as a company limited by shares having a permanents paid up or nominal capital of fixed amount divided into shares into shares, also of fixed amount held and transferrable as stock and formed on the principles of having its members of those shares or stock and no other persons”.

Definitions of a Company:- Accounting to Prof, “Joint stock company is a voluntary association of individuals for profit, having a capital divided into transferable share, the ownership to which is the condition of membership”. In the words of Justice Lindley, “By a company is meant an association of many persons and employ it for a common purpose. The common who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. Shares are always transferable, although the right to transfer them is often more or les restricted”. Thus, a joint stock company is an incorporated association of persons having a separate legal existence, with a perpetual succession and common seal. Its capital is divided into shares which are freely transferable and the owners of these shares have limited liability. It is an artificial person created by law.

Characteristics of a Company:- The distinctive features of the company form of organization are as follows:-

1- Separate legal existence: - A company has a distinct legal entity independent of its members. It can own property, make contracts and file suits in its own name. Shareholders are not the joint owners of the company’s property. A shareholder cannot be held liable for the acts of the company. Similarly, members of the company are not its agents. There can be contracts between a company and its members. A creditor of the company is not a creditor of its members.

The separate legal entity of a company was recognized in the famous case of Salomon, v. Salomon and Co. Ltd. the facts of the case were as follows:

Salomon farmed a company which acquired his own shoe business. He took all the shares except six shares which he distributed among his wife, daughter and four sons. Salomon also purchased some debentures of the company which gave him a charge over its assets. At the time of winding up, the company’s assets were not sufficient enough to pay its debts. The creditors of the company (other than Salomon) argued that their debts should be cleared before paying Salomon for his debentures because Salomon and the company were one and the same person. The Court decided that after incorporation, Solomon and Co. had an identity separate from Salomon even though he owned virtually all the shares in the company.

2- Perpetual succession:- Perpetual succession means continued existence. A company is a creation of the law and only the law can bring an end to its existence. Its life does not depend on the life of its members. The death, insolvency or lunacy of members does not affect the life of a company. It continues to exits even if all its members die. Members may come and go but the company goes on until it is wound up.

3- Limited liability:- As a company has a separate legal entity, its members cannot be held liable for the debts of the company. The liability of every member is limited to the nominal value of the shares bought by him or to the amount of guarantee given by him. For instance, if a member has 50 shares of Rs. 10 each, his liability is limited to Rs. 500. Even if the assets of the company are insufficient to satisfy fully the claims of the creditors, no member can be called to pay anything more than what is due from him. However, if the members of the company so desire they may form a company with unlimited liability.

4- Transferability of shares: - The capital of a company is divided into parts. Each part is called a share. These shares are generally transferable. A shareholder is free to withdraw him membership form the company b y transferring his shares. However, in actual practice some restrictions are placed on the transfer of shares.

5- Common seal: - Being an artificial entity, a company cannot act and sign itself. Therefore, it acts through human beings. All the acts of the company are authorized by its common seal. The name of the company is engraved on its common seal. The Common seal is affixed on all important documents as a token of the company’s approval. The common is the official signature of the company. Any document which does not bear the common seal of the company is not binding on the company.

6- Separation of ownership and control:- Members have no right to participate directly in the day-to-day management of a company. They elect their representatives, called directors who manage the company’s affairs on behalf of the members. Thus, the ownership of a company is distributed amount the shareholder while management is vested in the board of directors. The management of a company is delegated and centralized.

7- Voluntary association: - A joint stock company is a voluntary association of certain persons formed to carry out a particular purpose in common. Members of a company can join it and leave it at their own free will.

8- Artificial legal person: - A company is an artificial person created by law. Its exists only in contemplation of law. It is contemplation to enter into contracts and to own property in its own name. But it does not take birth like a natural person and it has no physical body of a natural human being.

9- Corporate finance:- The share capital of a company is generally divided into a large number of shares of small value. These shares are purchased by a large number of people from different walks of life.

10-Statutory regulation and control:- Government exercise control through company law over the management of joint stock companies. A company is required to comply with several legal formalities and to file several documents with the Registrar of Companies.

Distinction between Company and Partnership Both company and partnership are associations of

persons but the two differ in the following respects.

1. Formation and registration:- A company is created by law while partnership is the result of an agreement between the partners. In the formation of partnership no legal formalities are involved and registration of the firm in not compulsory. A company can be formed only after fulfilling legal formatives and its incorporation under the Act is essential.

2. Number of members:- The minimum number of partners in a partnership firm is two and the maximum is 10 in banking business and 20 in other businesses. In a private company, the minimum number of members is 2 and the maximum is 50. In a public company minimum number of members is 7 and there is no maximum limit prescribed by law.

3.Legal status:- A company has separate legal entity independent of its members but a partnership firm has no separate legal entity different from its partners. Partners and the firm are one and the same in the eyes of law. Property of a partnership firm is the joint property of partners. In a company members are not joint owners of its property.

4.Liabilities of members:- In a joint stock company the liability of every member is usually limited to the unpaid money on the shares held or the amount of guarantee given by him. But in partnership, partners are jointly and severally liable to an unlimited extent.