company forms of bussiness - Coggle Diagram
company forms of bussiness
A Joint Stock Company or simply a company is a voluntary association of persons generally formed for undertaking some big business activity.
It is established by law and can be dissolved by law.
The company has a separate legal existence so that even if its members die, the company remains in existence.
Its members contribute money for some common purpose. The money so contributed constitutes the capital of the company.
The capital of the company is divided into small units called shares.
Sincemembers invest their money by purchasing the shares of the company, they are known as shareholders and the capital of the company is known as share capital.
What are the characteristics of a Joint Stock Company?
Artificial Person - In sense it is created by law but does not possess physical attributes of a natural person. It has a legal status like a natural person.
Formation - Company comes into existence only when it is registered under the Indian Companies Act,1956.
Separate Legal Entity - Being an artificial person, a company exists independent of its members.
The number of members, names of members doesn’t impact the company.
Common Seal - This is the official signature of the company. (example - Logo)
Perpetual existence - The company enjoys continuous existence even if there is death, lunacy or retirement of its members.
Limited Liability of Members - The liability of a member is limited to the extent of the amount of shares he holds. Example, if the company undergoes losses, the person will be liable to pay only to the amount of shares he holds.
Transferability of Shares - Shares can transferred by holding members to others as and when they like.
Membership - To form a joint stock company, a minimum of two members are required in case it is private limited company and seven members in case of public limited company
Democratic Management - All members have voting rights as per the shares they hold.
It cannot have more than 50 members. Employees of the company are not included in this.
Normal public cannot be invited to purchase its shares and debentures.
Members are restricted to sell or transfer their shares.
Minimum share capital required is One lakh rupees.
It is mandatory for private companies to write ‘Private Limited’ after their names.
It can invite the public to subscribe to its shares and debentures by open invitation.
A minimum of seven members is required to establish a public company. There is no limit on the maximum number of its members.
There is no restriction on the transfer of shares i.e., the shareholders are free to sell their shares to the public.
The public company must have a minimum paid up capital of five lakhs rupees.
A public company must write ‘public limited’ or simply ‘Limited’ after its name.
Eg. Reliance Industries Limited, Bajaj Auto Limited, Steel Authority of India Limited.
Any company in which the government owns at least 51% of stake.
Eg Coal India Limited, BHEL Bharat Petroleum etc.
Statutory Company: Company created by special Act of Parliament.
Foreign Company: A company which is constituted outside of India and having operations in India.
What are the various limitations of a Joint Stock Company?
Despite the merits of a Joint Stock Company, there are several limitations as well.
Difficult to Form: It is very difficult and expensive to form a company. A number of documents have to be prepared and filed with the Registrar of companies.
Control by a Group: Most of the companies end by being managed by Directors belonging to the same family.
Excessive Government Control - A company is subject to elaborate statutory regulations in its day-to-day operations. Periodical reports, audit and Publications of accounts is obligatory.
Delay in Decision making: Due to excessive procedural formalities, important decisions get delayed.
Lack of Secrecy : Under the Companies Act, 1956 a company is required to disclose to the public a variety of information on its working. This results in lack of secrecy.
Social abuse: Being a large scale business organisation and having huge resources; it provides a lot of power to them. Any misuse such as having a monopoly over certain business, industry or product, influencing the politicians and government in getting their work done, exploiting the workers, consumers, investers.
How to choose the right kind of Organisation?
All business organisations need different financial and managerial resources. Factors which help us in selecting the right form of organisation.
Ease of formation
Availability of Large resources
Liability or Risk
Extent of State Control