Joint Stock Company

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Questions:

Multiple Choice Question

5 x 1 = 5

The existence of a company comes to a close:

(a)

On the death of all its promoters

(b)

On the death of all the directors of the Board

(c)

On transfer of shares by most of its original members

(d)

None of the above

Domestic Companies are those that have been registered under the ____________

(a)

Companies Act of 1956 or Earlier Acts

(b)

Partnership Act

(c)

Indian Regulations Act

(d)

None of these

Any contract entered into a company to be valid must _____________

(a)

be accepted by the board members

(b)

be recognised by the Government

(c)

be registered with the registrar of companies

(d)

bear the official seal of the Company

________ companies are established by the King or Queen of a Country.

(a)

Chartered

(b)

Statutory

(c)

Public

(d)

Private

The Minimum subscription specified in the prospectus must be received within_________.

(a)

60 days

(b)

90 days

(c)

120 days

(d)

150 days

Generic 3

5 x 3 = 15

Give the meaning of share.

What is meant by perpetual succession?

What do you mean by Company limited by Guarantee?

What is meant by Joint and Several Liability?

10.

What is Memorandum of Association?

Generic 2

5 x 2 = 10

11.

What is stated in the situation clause in a memorandum?

12.

What is Objective clause?

13.

What is Situation clause?

14.

What is meant of Articles of Association?

15.

What is meant by Memorandum of Association?

Generic 5

4 x 5 = 20

16.

Bring out the distinction between a company and partnership?

17.

What are the disadvantages of company?

18.

Ashok is an industrial designer by training. He had the opportunity to learn the technology of fibre glass manufacture while he was in Germany for his training. He plans to set up a plant for the manufacture of fibre glass in India and is able to interest some financiers and technologists. It is estimated that the initial investment in the plant will be of the order of Rs 50 lakhs. Ashok and others decide to set up a company for the purpose. Should they set up a public limited company for the purpose? If so, how should they go about it? If not, what-alternative would you suggest? What formalities will be required of Ashok and his associates if they choose the alternative form of organization suggested by you?

19.

Classify the Companies According to its Incorporation.

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Answers Key:

Multiple Choice Question

5 x 1 = 5

(d)
None of the above

(a)
Companies Act of 1956 or Earlier Acts

(d)
bear the official seal of the Company

(a)
Chartered

(b)
90 days

Generic 3

5 x 3 = 15

According to section 2 (46) of the Companies Act, a share means a share in the share capital of the company and includes stock, except where a distinction between stock and shares is express or implied. A share indicates certain rights and liabilities.
The capital of a company is divided into units of a fixed denomination, Share refers to only such a unit. It is therefore clear that a share is a fractional part of the company's share capital.

Perpetual succession means a joint-stock company has 'continuity of life'. According to Lord Gower, "Members may come and go but the company can go on forever". This is because company's existence does not depend upon the existence of even promoters who were instrumental in its formation. Neither change in the membership of the company nor the death of its members has any impact on the continuity of its life.

A company limited by guarantee is a company in which the liability of its members is limited by its memorandum to such an amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. Such companies are generally formed for the promotion of Commerce, Art, Science, Religion, Charity or any other useful object. The companies limited by guarantee may be either private companies or public companies.

Every partner is jointly and severally liable for all acts of the firm. It means that in case these its are inadequate for meeting the claims of creditors, even their personal properties should be made available. The creditors can recover their claims from all the partners.

10.

(i) A Memorandum of Association (MOA) is a legal document prepared in the formation and registration process of a limited liability company to define its relationship with shareholders.
(ii) It reveals what powers it has and what activities the company is permitted to undertake.
(iii) It is a public document and any person dealing with the company is presumed to have sufficient knowledge of it. It is the primary document of a company.

Generic 2

5 x 2 = 10

11.

The state in which the registered office of the company is to be situated is stated here. Actual address need not be given.

12.

The objective clause requires you to summarize the main objectives for establishing the company with reference to the requirements for shareholding and use of financial resources. You also need to state ancillary objectives; that is, those objectives that are required to facilitate the achievement of the main objectives.

13.

The registered office clause requires you to show the physical location of the registered office of the company. You are required to keep all the company registers in this office in addition to using the office in handling all the outgoing and incoming communication correspondence.

14.

The Articles of association (AOA) is a document that contains the purpose of the company as well as the duties and responsibilities of its members. It is an important document which needs to be filed with the Registrar of Companies.

15.

A Memorandum of Association (MOA) is a legal document prepared in the formation and registration process of a limited liability company to define its relationship with the shareholders.

Generic 5

4 x 5 = 20

16.

S.No	Basis of Difference	Partnership Firm	Joint-Stock company
(i)	The Acts	Partnership firm is governed by the Indian Partnership Act, 1932.	Companies are governed mainly by the provisions of the Companies Act, 1956.
(ii)	Registration	Registration with the registrar of firms is only optional.	Registration with the registrar of companies is compulsory.
(iii)	Number of members	A rrurumum of two persons is necessary to form a partnership. The maximum number is restricted to 10 in the case of banking business and to 20 in other types of businesses.	The minimum number of persons required for starting a private limited company is 2, while it is 7 in the case of a public limited company. The maximum number of members is restricted to 50 exclusive of present or past employeemembers in the case of a private limited company and it is limitless for a public limited company.
(iv)	Legal status	Partnership firm has no separate existence. Partners collectively constitute the firm.	It is an artificialperson created by law. Its existence is independent of its members.
(v)	Liability	The liability of a partner is joint, several and unlimited. Personal assets of the individual partners can also be attached for satisfying the firm's debts. Anyone partner can also be sued for this purpose.	The liability of the shareholder is limited to the unpaid amount of shares held. If the shares are fully paid up,.no further liability is attached to the shareholders, however rich they may be.
(vi)	Transfer of Shares	Apartner cannot transfer his interest in the firm without the consent of all other partners.	In a public limited company, shares are fully transferable. However,certain restrictions are placed on transfer of shares in the case of private limited companies.
(vii)	Management	Management of a firm is carried on by all or by any of them acting for all. In other words, every partner is entitled to participate in the management.	Direct participation of shareholders in the management of the company is not allowed. It is entrusted to the Board of Directors elected by the members.
(viii)	Stability	A partnership firm is not stable. Its continuity is threatened by certain death.insanity insolvency of any or all its partners.	A company is. stable as it is totally unaffected by any such contingencies.
(ix)	Procedural complexities	Both for formation and dissolution, the procedures are simple.	Both the formation and winding up are subject 'to many legal formalities.
(x)	Financial resources	The capital contribution as well as the finance that can be raised tend to be limited.	The scope for mobilising larger resources is very wide.
(xi)	Membership	In a partnership only individuals can become its members	In a company, an institution can also become a member by purchasing its, shares.
(xii)	Separation from members	The existence of partnership is not separate from its partners.	Being established and registered under the Companies Act, the company acquires a legal existence and thus remains separate from its members.
(xiii)	Nature	Partnership is the relation between persons who have agreed to share the profits or losses of a business.	A company is an artificial person.
(xiv)	Mutual relationship of the members	In the partnership, each partner is an agent of the others and everyone of them has a right to take active part in the conduct of business. Thus, for the acts performed by one partner rest of the partners become liable.	The members of the company are not its agents or representatives nor they have direct right to take active part in the management and control of the company. Thus, a member of the company cannot make liable other members for his own act.
(xv)	Audit	Auditing is not compulsory.	It is essential for every company to get its accounts and account books annually audited by chartered accountant
(xvi)	Dissolution	Partnership, can be mutually, dissolved at any time.	Company comes to an end by operation of law.

17.

The disadvantages of company are:
(i) Costly and difficult to form:
Number of legal formalities must be observed in the formation of the company. To observe these legal formalities, promoters have to spend much time and money.
(ii) Scope for dishonest and unscrupulous management:
The directors manage the company with the help of paid officers, If the directors are dishonest, they may make personal gain at the expense of the company. They may misuse their power and position.
(iii) Management oligarchy:
A few rich persons may secure control over the affairs of the company. Thus, the, management of a joint stock company might become oligarchic in character. (Oligarchy means a small group of people having control)
(iv) Speculation:
A few individuals may corner the shares to gain control over the company.
(v) Lack of interest:
The officers of the company do not have incentive to work hard. They are not usually inclined to take risks. They lack initiative.
(vi) Lack of good labour relations:
In sole trading business personal supervision is possible. But in company form of organisation there is lack of personal contact between owners and workers. As a result, there is scope for more industrial disputes in a company form of organisation.
(vii) High taxation:
Joint stock companies have to pay tax at higher rates compared to other forms of organisations.

18.

(i) If he and his friends selected to start public limited company. They can start with more formalities.
1. Issue of prospectus
2. Huge capital
3. Shares can be issued and substituted in huge level of capital (i.e. Authorized capital)
4. Minimum 7 members to start a public company.
5. Maximum number of limit
6. The public company does not restrict the right to transfer its share
(ii) If he decides to start private limited company, my suggestions are as follows
1. Investment arranged privately with his friends
2. He can collect capital with limited capital
3. Private company cannot issue prospectus
4. One person company also can start, but capital of initial investment can be arranged privately.

19.

Chartered Companies:
Chartered companies are established by the King or Queen of a country. Powers and privileges of these companies are specified in the charter. The cancellation of power is in the hands of King/Queen. E.g East Indian Company, Bank of England etc.
Statutory Companies:
Companies are established by a Special Act made in the Parliament/State Assembly. The Constitution of the company is specified in the Memorandum of Association. The rules are specified in the Articles of Association. Statutory companies enjoy autonomous status. It need not use the word 'Limited' next to its name.
Association Not for Profit:
According to section 25, the Central Government may, by license, grant that an association may be registered as a company with the limited liability, without using the words 'Limited' or 'private limited' as part of its name. The license will be granted only in the case of 'association not for profit'. Such companies may be public or private companies and may or may not have share capital.