What is joint stock company? Explain how it overcomes the limitations of non-corporate form of organization?
A joint stock company is an association of persons who are registered under, Companies Act for carrying on some business. As per the Indian Companies Act, it is defined as “a company limited by shares having a permanent paid up or nominal share capital of fixed amount divided into shares, also of fixed amount, held and transferable as stock and formed on the principles of having in its members only the holders of those shares and stocks and no other persons.” It is said to be an artificial person because it is created by law Existence of a joint stock company remains constant, Its life is not at all affected due to the death, lunacy, insolvency of its shareholders.
Members’ liability in a company is limited by shares or by guarantee. Such form of organization has to comply with varied statutory requirements. It is suitable when large resources are required. A lot of joint stock companies now-a-days, are coming up. Because of the merits of joint stock company, it was able to overcome the limitations of non-corporate form of organization.
Large capital: This form of organization is best suited, if the need arises to raise the capital in large amounts. Shares and debentures can be issued, if new capital is required by the company.
Limited liability: Shareholders have limited liability to the face value of the shares held by them or guarantee given by them. They cannot use their personal property to pay the dues of the company. Persons not willing to take risk can use this form of organization. This feature is not there in non-corporate form of organization.
Stability of existence: An important feature of a company is it has a separate legal entity with perpetual succession The Corporation continues i.e. the working of the company is not affected even if the shareholder, director becomes insolvent.
Economies of scale: Companies can be involved in large scale buying, selling etc, as they operate on large scale. Because of this, consumers can obtain goods at cheaper prices.
Public confidence: The work of the government is to control and regulate companies. It is the duty of the companies to get their accounts audited by a C.A. and published. This helps in creating confidence in public about the company’s working and functioning.
Transferability of shares: Shareholders can sell their shares at any time without the consent of the other shareholders. They can even get their shares converted into cash without much difficulty.
Risk diffused: As there are lot of members, the risk of the business is divided among various members of the company. This proves to be an advantage for small investors.
Tax benefits: It is duty of the companies to pay taxes at flat rates. Companies do not follow any slab system for paying their taxes. Companies, because of this, pay less amount of taxes on higher incomes as compared to other forms of organization.
Scope for expansion: Companies can expand their business by issuing new shares and debentures. They can follow this method because there is no limit to the maximum number of shareholders.
Companies can also use some part of their profits which they normally keep as reserve.