Joint Stock Organization

The Joint Stock Organization is the most important type of business organization in the modern times. It has overcome the obstacles of raising capital and unlimited liability. It has proved its superiority over individual ownership and partnership type of organizations. This form of organization can be classified into two types which are: 1) Private Limited Company and 2) Public Limited Company

Private Limited Company :

• The Private Limited Company can be established with two to fifty members.
• When this type of organization expands beyond a certain limit, it can restrict the liability by registering the firm as a ‘Limited Company’.
• There is no restriction on the number of members.
• The promoters of the company have to submit to the registrar of Joint Stock Companies, the following details about their organization:

1.Name of the company

2.Place and address of the Head Office of the Organization.

3.Aims and objectives of the company.

4.Amount of share capital required for the formation of the company.

5.What shares are issued, the company has to mention the face value of each share (Rs. 10, 20, 50….)

6.A declaration stating that the liability of the shareholders is limited.

The above mentioned information is called as ‘Memorandum of Association’.

5.Along with the Memorandum of Association, the Joint Stock Company has to submit the Articles of Association containing the bye-laws of the company.

6.After completing the legal requirements, the Registrar of Joint Stock Companies grants the Certificate of Incorporation.

7.The company cannot start functioning unless a certain minimum percentage of the issued capital is subscribed. This safeguards the interests of the investors.

8.The complete share capital is not paid in a lump-sum. The required amount is paid up by the shareholders as per the requirements of the company.

9.Within six months, after allotment of the shares, the promoters must call a General Body Meeting of the shareholders to elect the Company Directors.

10.Generally, the promoters of the company manage to get themselves elected.

Advantages of Joint Stock Organization

• Large scale business can be conducted.
• It can take advantages of economies of scale in production.
• The management of this organization can employ specialized labour and can use the latest machinery and thus can achieve large scale production at low cost.
• Economies of buying and selling in large quantities can be achieved.
• It is possible to spend certain amount on research, experiments and promoting its scale respectively.
• It can enjoy the internal and external economies of large scale production.
• When shares of lower denominations are issued, people from different income groups can purchase the shares. They ensure collection of large capital.
• As shares are transferable and have a limited liability, they induce many people to subscribe to the share capital. It mobilizes scattered capital and channelizes it into productive areas.
• It develops the habit of saving in the community.
• An able organizer never finds it difficult to collect capital.
• This form of organization, capital and organization are separated from each other, resulting in increasing efficiency. Those who have organizational ability can obtain capital and those who lack business ability can obtain capital and those who lack business ability but have capital, can also offer their capital for such organization and help in the economic progress of the country.
• The management works on democratic principles, which results in economy and efficiency. Persons of administrative ability and business outlook can give expert advice and guidance to the company at a moderate cost.

Disadvantages of Joint Stock Organizations

• The management is democratic in theory only. In practice, the directors can manage to remain in power as long as they wish to. The shareholders do not have much interest and voice in the management of the organization.
• Some of the directors may exploit investors. For instance, they may give false information stating that the company is going into loss as a result of which the value of the company’s shares goes down. Then, they may purchase these devalued shares for their own benefits.
• The welfare of the employees is completely neglected.
• Profits becomes the only concern of the shareholders. They have no interest in the working of the company and do not attend meetings.
• Sometimes, the directors undertake risky ventures and thus, they incur a loss.
• The organization becomes unwieldy and quick decisions to suit business requirements, cannot be taken.

Apart from all these disadvantages, it is of organization that has made industrial development possible. All leading business organization have accepted this form of organization.

Joint Stock Companies are of two types viz.

·        Private Limited

·        Public Limited

Private Limited

• This type of organization can be formed by two or more persons coming together.
• In this form of organization, there is a limit on membership. It cannot have more than 50 members.
• Such organization, are not required to submit a balance sheet and audited reports to the government.
• Transfer of shares takes place between members only. The public cannot be asked to subscribe to the share capital.

Public Limited Company

• Membership of this type of organization is open to the general public.
• The minimum members required to form such a company is seven.
• There is no upper limit on the number of members (shareholders).
• Public Limited Companies can advertise for collection of capital and the public can subscribe to the share capital.
• Such organization have to give an account of their business to the government.
• Financial control of such organization by the government is necessary to safeguard the interest of the shareholers.
• Shares are freely transferable.
• The company is managed by the ‘Board of Directors’ elected by the members.
• The number of Directors is limited to seven.

Comparison between Joint Stock Organization and Partnership Company.

Sr.No.	Joint Stock Organization	Partnership Company
1.	Liability is limited to the contribution made by the shareholders.	Liability is unlimited.
2.	There is no maximum limit on the membership.	Membership is limited to a maximum of 20 members.
3.	Investors and Management are separate.	Investors and Management are one and the same.
4.	Sufficient capital can be collected.	Capital collection is limited.
5.	Transfer of shares is possible.	Transfer of shares is possible only between partners with the consent of the other partners.
6.	The organization can undertake only such business as mentioned in the Memorandum of Association.	The company can undertake any type of business with the mutual consent of all the partners.
7.	Management of the company is looked after by the Board of Directors.	Every partner is authorized to manage the business.
8.	It has to keep detailed accounts of business and present the balance sheet and audit report to the Government.	There are no restrictions of keeping detailed accounts and the accounts are not required to be sent to the Government.
9.	Death or retirement of a shareholder does not affect the business.	Retirement or death of a partner affects the business.
10.	Smooth and efficient management is possible as it works on democratic principles.	Selfish attitude among partners may create difficulties in business.
11.	It has a perpetual existence.	Partnership organization are generally short-lived.