What is Company form of Organisation?
Company form of Organisation.
Joint stock company is defined as a company limited by shares having a permanent paid up or nominal share capital of fixed amount divided into shares of fixed amount, held and transferable as stock and formed on the principles of having in its members only the holders of those shares or stocks and no other persons.
- A company comes into existence after getting registered under the Companies Act.
- A company cannot sign the documents but a common seal is used as a substitute of its signatures. Name of the company is engraved on the seal.
- Life of a company is not affected even if the directors die, become insolvent or lunatic and retire.
- Company enjoys a limited scope. It cannot take up new business without changing the object clause.
- Company’s accounts must be audited by a C.A and it has to submit returns to the Government.
- Members of a company have limited liability by guarantee or by the shares held by them.
Classification of Companies
On the basis of incorporation: Statutory company, established by a Special Act of parliament or state legislature; Registered company, formed through registration with Registrar of companies under the Act and Charters Company, formed through a social royal charter granted by Monarch.
Based on the type of liability: Unlimited companies, where members have unlimited liability, Limited companies by share, where liability is limited to the amount of shares held by the members and Companies limited by guarantee, where members give guarantee to pay debts of the company to a certain limit.
On the basis of ownership: Private limited company, where shares cannot be transferred and number of members can only be fifty, Public limited company, where shares can be transferred and public can be invited to subscribe its shares and debentures and Government company, where not less.than 51% of paid up share capital is under Central Govt or State Govt.
On the basis of jurisdiction of functioning: National company, where operations of a company are restricted with the boundaries of a country and Multinational company, where the operations are extended beyond the boundaries of a country. It is also called transnational company.
Merits of Company Form:
- Large capital: Such firms can have a large numbers of share holders and can raise capital by issuing shares and debentures.
- Limited liability: Members have limited liability to the face value of shares held by them or guarantee given by them.
- Scope for expansion: Companies can expand their business by issuing shares and debentures as there is no limit to the number of shareholders.
- Public confidence: Companies can easily gain the confidence of public because their accounts are audited by CA and published.
- Transfer of shares: In such firms, shareholders can sell their shares at any time without taking the consent of other shareholders.
- Risk diffused: Risk of loss is divided among various members of the company and this proves to be of benefit for small investors.
Limitations of Company Form:
- Lack of secrecy: As there are many persons involved in a company, business secrets cannot be maintained properly.
- Decision making: There is a delay in decision making because of large number of shareholders. Decision making process is time consuming.
- More government restrictions: Company has to spend a lot of time and effort in complying with various legal requirements.
- Fraudulent practice: Company’s resources may be misused by the directors for their own benefits and this may bring losses to company.
- Neglect of minory interest: Shareholders who are in minority never get representation on Board of Directors. Their interests are neglected and oppressed by majority group.
- Difficulty in promotion: Many legal formalities are to be performed at the registration time. Promotion is expensive and complicated.