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Definition A Joint Stock Company is a voluntary association of individuals for profit, having its capital divided into transferable shares, the ownership of which is the condition of membership. A company is an incorporated association of persons formed usually for the pursuit of some commercial purpose. Section 3(1) of Indian Companies Act, 1956-Company means a company formed and registered under this Act or an existing company Existing company means a company formed and registered under any of the previous company laws

A JSC is a type of corporation or partnership involving two or more individuals that own shares of stock in the company. Certificates of ownership ("shares") are issued by the company in return for each financial contribution.

The shareholders are free to transfer their ownership interest at any time by selling their shareholding to others.

A voluntary association of persons who generally contribute capital to carry on a particular type of business. Persons who contribute capital become members of the company. Company has a legal existence separate from its members, which means even if its members die, the company remains in existence. This type of company needs huge capital investment. The total capital of a JSC is called share capital and it is divided into a number of units called shares. Members are also called shareholders.

In 1250, in Toulouse, France, Bazacle Milling Company traded 96 shares whose value depended on the profit of the company. In 1288, a Swedish company, Stora documented transfer of shares. In modern history, the earliest recognized company was the British East India Company, was one of the most famous jointstock companies. In 1602, the Dutch East India Company issued shares on the Amsterdam Stock Exchange. The first JSC to be implemented in the America were The Virginia Company and The Plymouth Company.


a separate legal entity, distinct from the people engaged in it. It involves three sets of economic actors: 1. shareholders - provide financial capital in return for a share in the profits, 2. directors Their role is to:
protect the interest of the share holders, to ensure the company is working within the law it does not trade in cases of bankruptcy.

3. employees - who work but, are legally not a part of the company

Characteristics of JSC (Contd.)


Incorporation a voluntary association of persons formed and incorporated under the existing law. Artificial person created by legal process and not by natural birth. Even though it has no natural personality, it has legal personality Common Seal every company by law must have a common seal on which its name is engraved. The common seal can serve as its signature.

Characteristics of JSC (Contd.)



Perpetual succession men may come and men may go but a company remains forever. It can be wound up only under the provisions of the act. Limited liability usually the liability of members of a company is limited to the extent of uncalled or unpaid value of shares held by them. Share capital The capital required by the company is raised by issuing shares. The member who holds the shares of a company can transfer its ownership any other person, without the companys permission.

Characteristics of JSC (Contd.)

Separation of ownership and management 1. The shareholders do not take active part in the everyday affairs of the company. 2. Elected representatives known as Directors, who with the help of managers and employees manage the company. Legal Entity 1. It has separate legal existence compared to its members. 2. The members cannot be personally held responsible for the acts of the company. Large membership Owned by a larger number of members.

Promotion is the discovery of ideas and organization of funds, property and skill to run the business for the purpose of earning income. Steps involved 1) Idea about Business 2) Investigation- make out plans as regards to the availability of resources like capital, means of transportation, labour, electricity, gas ,water, etc. 3) Assembling various Factors- like arrangement of licences, copyrights, employment of necessary employees, etc.

4) Financial Sources 5) Preparation of Essential Documents like Memorandum, Articles and Prospectus of company. The promoters carryout these various activities to give the company its physical shape in the form of Giving a name to the company Sanctioning of Capital Issue

The second stage for establishment 1)Filing of Document: Following documents are to be submitted by the promoters in the Registrars office a) Memorandum of Association indicates name, address, authorized capital etc. b) Articles of Association contains laws and rules for internal control and management of a company. c) List of Directors list of the names, occupations, addresses, along with the declaration of director.

d) Written Consent of Directors e) Declaration of Qualifying SharesA declaration certificate showing that the directors have take n up qualifying shares and have paid up the money or pay it in near future to the registrar. f) Prospectus g) Statutory Declaration stating that all legal formalities have been completed.

2) Payment of Registration Fee the registration fee is paid to the Registrar for Application and documents filing fee Registration fee Stamp fee on Memorandum and Articles 3) Certificate of Incorporation If the registrar finds all the documents right, he issues the certificate of incorporation to promoters.

After getting certificate of incorporation, the next stage is to make arrangement for raising capital by issuing i) Shares ii) Debentures iii) Savings CERTIFICATE OF COMMENCEMENT requires the fulfilment of following conditions a) Issue of Prospectus: A company has to issue prospectus for selling shares and debentures to public.

b) Allotment of Shares c) Minimum Subscription certified that the shares have been allotted up to an amount, not less than the minimum subscription.

The Fourth and Final Stage After verifying the foregoing documents, the registrar issues the certificate of commencement of business

1) On the basis of Incorporation a) Chartered Companies i) Such companies are incorporated under a Royal Character (order) issued by the King or Queen or Head of the State. ii) Such companies have exclusive rights, powers and privileges under the royal charter. Example: East India Company, Bank of England 2) Statutory Companies i) Such companies are formed under the special act passed by the Parliament or State Legislature. ii) The powers which can be exercised by such companies are defined by the Acts that constitute them.

Example: Reserve Bank of India, State Bank of India, Life Insurance Corporation 3) Registered Companies i) A company incorporated under the Indian Companies Act, 1956 is called Registered Company. ii) The powers exercised by such companies are defined by the Companies Act and Memorandum of Association. iii) A registered company can be a Private Ltd. Company or a Public Ltd. Company

On the basis of liability of its members 1)Companies Limited by Shares i) the liability of the members is limited to the extent of the unpaid value on shares. ii) Such companies may be a Public limited company or a Private limited company 2) Companies Limited by Guarantee i) Member guarantees to pay a fixed sum of money (specified in the memorandum) at the time of liquidation of the company for payment of companies liabilities. ii) Such companies are formed without a share capital for non trading (non profit) purpose. iii) Depend on entrance and subscription fees as they do not have share capital.

3) Unlimited Companies i) The liability of the members is unlimited. ii) In the event of winding up of the company. the private property of the member can be used to pay the debts of the firm. iii)Due to the high risk involved, such companies are not found in India. On the basis of Membership 1) Private Limited Company A private limited company is the one which by its articles i) Limits the maximum number of its members to 50, minimum being 2.

ii) Places some restriction on the transfer of its shares iii) Prohibits any invitation by prospectus or otherwise to the general public to subscribe to any of its shares or debentures iv) A private company must used the word Private Limited after its name. 2) Public Limited Company i) It must have atleast 3 directors 1/3rd of the directors are permanent and 2/3rd are subject to retirement by rotation out of which 1/3rd retire every year. ii) Shares can be freely transferred in a public company. iii) In case of a public company Statutory Meeting is compulsory.

On the basis of Ownership

1) Government Company
i) Company in which not less than 51% of the paid up share capital is held by the Central Government and / or by any State Government(s) or partly by the Central Government and partly by one or more State Governments.

ii) Follows provisions of the Indian Companies Act, 1956. Examples: Hindustan Machine Tools, Oil and Natural Gas Commission etc.

2) Foreign Companies:
i) company which is registered in one country but carries out its operations in India.

On the basis of Shareholding

1) Holding Companies i) A company which controls another company by holding a minimum 51% of shares and thereby controlling the composition of the board of the company. 2) Subsidiary Companies i) A company in which another company holds a minimum of 51% of share capital i.e. holding company is known as subsidiary company.

Private Limited Company Public Limited Company 1. Membership: Minimum membership 2, Maximum Minimum membership 7, Maximum membership 50 membership unlimited

2. Formation Comparatively simple, certificate of Comparatively difficult as the procedure incorporation is adequate is lengthy. 3. Number of Directors: It must have at least two directors 4. Transfer of Shares: The shares are not freely transferable

It must have at least three directors

Shares are freely transferable.

5. Issue of Prospectus: It is allowed to issue prospectus

It can issue prospectus

6. Commencement of Business: It can start the business after the It requires trading certificate for starting receipt of certificate of incorporation. business 7. Suitability: Suitable for business on a small scale

Suitable for large scale business.

8. Invitation: It cannot invite public to subscribe for It invites public to purchase securities of securities of the company the company.

9. Allotment: It can allot shares immediately after Shares cannot be allotted unless incorporation minimum subscription is collected. 10. Qualification shares: The directors need not qualification shares hold The directors have to purchase some qualification shares to become the director. A director cannot be a director of more than 20 companies

11. Directorship: There is no restriction on the number of directorship 12. Quorum: Two members present in the meeting is a quorum at general meeting

Five members present in the meetings is a quorum at general meeting.

A) There are three type of companies -Private Limited, Public Limited and Government companies on the basis of ownership B) Two types of companies - Indian and Foreign on the basis of nationality.

1) Private Limited Company i) can be formed by at least two individuals having minimum paidup capital of not less than Rupees one lakh.
ii) total membership of these companies cannot exceed 50.

iii) shares allotted to its members are also not freely transferable between them. iv) not allowed to raise money from the public through open invitation. v) are required to use Private Limited after their names. examples : Combined Marketing Services Private Limited, Indian Publishers and Distributors Private Limited Limited, etc.

2) Public Limited Company

i) Min of 7members are required, no restriction on max no of members ii) must have minimum paidup capital of Rs. 5 lakhs. iii) shares allotted to the members are freely transferable.

iv) can raise funds from general public through open invitations by selling its shares or accepting fixed deposits. v) required to write either public limited or limited after their names. Examples :Hyundai Motors India Limited, Steel Authority of India Limited, Jhandu Pharmaceuticals Limited etc.

3) Government Company i) the Govt (either state or central Gvt or both) holds a majority share capital i.e., not less than 51%. ii) companies having less than 51% share holding by the govt can also be called Govt companies provided control and management lies with the Govt.

examples : Mahanagar Telephone Nigam Limited, Bharat Heavy Electricals Limited, etc.

4) Indian Company i) A company having business operations in India and registered under the Indian Companies Act, 1956 ii) company may be formed as a public limited, private limited or government company.

5) Foreign Company i) a company formed and registered outside India having

business operations in India.

Indian Companies Act 1956 defines share as a share in the share capital of a company and includes stock except when a distinction between stock and shares is expressed and implied. Owned capital of a company divided into a large number of equal parts or units. Each such part having the same face value is called share.

1.Equity Shares(Ordinary shares): Equity shares are those shares which do not have, preferential rights with regards to (1) Payment of dividend (2) Repayment (return) of capital, in case of winding up of the company. 2.Preference Shares: Preference shares are those shares which have preferential rights over the equity shares with regards to: (1)Repayment of capital in the event of liquidation / winding up of the company. (2)Payment of dividend.

Classification of Preference Shares:

(I) On the basis of participation: (a) Participating Preference Shares (b) Non participating Preference Shares
(II) On the basis of right to accumulate dividend: (a) Cumulative Preference Share (b) NonCumulative Preference Shares:

Classification of Preference Shares: (Contd.)

(III) On the basis of Redemption: (a) Redeemable Preference Shares (b) Irredeemable/Non redeemable Preference Shares

(IV) On the basis of Conversion: (a) Convertible Preference Shares (b) Non Convertible Preference Shares

3.Bonus Shares: A part of the companys profit is transferred to reserves. Out of such reserves a company issues bonus shares. Such shares are issued to the equity share holders of the company free of charge. Infact bonus shares are also equity shares.

4.Deferred Shares / Founder Shares / Management Shares: These shares are issued to the promoters of the company. They rank last of all shares in respect of payment of dividend and repayment of capital. Deferred shares are usually of a lower face value. Only private companies can issue deferred shares.

5.Qualification Shares: The articles of a company usually require a director to hold certain number of shares to be eligible as a director. Such shares are called qualification shares. The directors must obtain qualification shares within 6 months from his appointment as a director. If he does not purchase the qualification shares within the prescribed period he ceases to be the director of the company. He can purchase the shares from the company itself or from the stock market.

(a)Statutory Meeting The statutory meeting is held to inform the shareholders in respect of matters relating to: Allotment of shares Receipts and payments made by the company, etc. Incorporation of the company. Details of preliminary expenses. Details of the contracts concluded by the company or changes in the existing contract. Details of further prospects of the company Any special matters which require approval of the shareholders is placed before them at this meeting.

(b)Annual General Meeting

Every company shall in each year hold (in addition to any other meetings) a general meeting of its shareholders. The purpose of holding such meeting is to review the progress and prospects of the company and to elect directors and auditors, as the case may be.

(c)Extra Ordinary General Meeting

It is general meeting which is held between two annual general meetings. This meeting is called to discuss important and urgent matters which cannot be postpone till the next annual general meeting

A stock exchange is an entity that provides "trading" facilities for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.

Roles of Stock Exchange:

1.Raising capital for businesses 2.Mobilizing savings for investment 3.Facilitating company growth 4.Profit sharing 5.Corporate governance 6.Creating investment opportunities for small investors 7.Government capital-raising for development projects 8.Barometer of the economy



Stock Exchange

Market Capitalization (USD Billions)

Trade Value (USD Billions)

United States and Europe United States and Europe Japan United Kingdom China

NYSE Euronext



2 3 4 5

NASDAQ OMX Tokyo Stock Exchange London Stock Exchange

4931 3827 3613 2717

13439 3787 2741 4496

Shanghai Stock Exchange Hong Kong Stock Exchange

Toronto Stock Exchange

6 7

Hong Kong Canada

2711 2170

1496 1368


Bombay Stock Exchange National Stock Exchange of India BM&F Bovespa Australian Securities Exchange



9 10

India Brazil

1596 1545

801 868

11 12 13
14 15

Australia Germany China

Switzerland Spain

1454 1429 1311

1229 1171

1062 1628 3572

788 1360

Deutsche Bores
Shenzhen Stock Exchange SIX Swiss Exchange

BME Spanish Exchanges

Partnership Joint Stock Company 1. Meaning: Here 2 or more people come together for It is voluntary association, artificial person doing some business and making profit created by law having a common seal and perpetual succession 2. Formation: Relatively easy, less legal formalities Formation difficult, too many legal involved formalities involved. 3. Capital: It can raise limited capital due to limitation It can raise large capital due to large on the number of members and their members capacity 4. Liability: Liability of partners is unlimited joint and Members liability limited to the face value several of shares 5. Ownership and Management: There is no difference in ownership and There is no difference in ownership and management management

6. Flexibility: More flexible, compared to Joint Stock Companies 7. Continuity and Stability: Lacks continuity and stability, business may come to an end with death, insolvency and insanity of partners

Less flexible compared to partnership firm

Joint stock company is continuous and stable, business does not come to an end with death insolvency or insanity of partners

8. Business Secrecy: Can be maintained to a certain extent

9. Government Regulation: Minimum government regulation 10. Taxation: Less compared to joint stock companies

No business secrecy

Strict and excessive government regulation

Subject to heavy taxation

11. Decision making: Quick decision making

Delay in decision making

12.Economies of scale: Less economies of scale as compared to Joint Stock Enjoys economies of scale as it undertakes Companies business on a large scale

13.Bargaining Power: Generally weak bargaining power

14.Contractwith customers & employees: Close contact with customers and employees

Strong bargaining power

No contacts with customers and employees

15.Legal status: No legal status

Possesses and a legal status

16.Act: Governed by Partnership Act, 1932

Governed by Companies Act, 1956

(i) (ii) (iii) (iv) (v)

(vii) (viii) (ix) (x)


Large financial resources Limited Liability Professional management Large-scale production Contribution to society Research and Development Bargaining Power Government Revenue Economic Development Public Confidence Long Life

(i) (ii) (iii) (iv) (v)



(xi) (xii)

Difficult to form Excessive government control Delay in policy decisions Concentration of economic power and wealth in few hands Labour Disputes Lack of Responsibility Lack of Secrecy Double Taxes Lack of contact with customers Lack of contact with employees Conflicts of Interest Not suitable for all types of business

where the volume of business is large huge financial resources are needed suitable for businesses which involve heavy risks which require public support and confidence Examples: production of pharmaceuticals, machine manufacturing, information technology, iron and steel, aluminum, fertilisers, cement