The
institutional journey of business did not remain stipulated in this world which
started through formation of Sole
Proprietorship business. Partnership firm evolved to remove some
limitations especially short of capital and single operation, and smaller size
of sole
proprietorship business. But, the partnership
business could not free itself from the limitation of capital, law,
existence; liability etc. In this way demand of customer and business scope
increase rapidly. As a result, on a legal basis company is formed with more
capital and larger in size which is called joint stock business or company
organization. In fact, the changes in the production process because of
industrial revolution brought vast changes in the organizational nature and
scope of business. Production and distribution system placed itself in factory
coming out from the periphery of family boundary. As a result, Joint Stock
Company was born with more capital, limited liability, joint management and
legal entity and separate identity. It is mention-able here that Industrial
Revolution is the technological changes in agriculture, factories, and coal
mining and transportation system in Europe during the middle of eighteenth and
nineteenth century.
After completing this chapter, we shall be able to
·
Describe
the definition, features, and advantages and disadvantages of a joint stock
company
·
Describe
the formation process of Joint Stock Company
Joint
Stock Company is created and operated under the law. The first company act was
passed in Britain in 1844 which was known as “The Joint
Stock Company Act 1844”. In the subcontinent of British ruled India first
company act was passed on 1850. In 1913, the Indian company act was again
passed. In independent Bangladesh the company act of 1913 has been followed so
long. The new company act in Bangladesh was introduced in 1994 with lots of
changes and corrections. At present in Bangladesh all the joint stock business
has been running under the company act 1994. According to Company Act 1994,
company means-company formed and registered under the law or any existing
company. Actually, company is such an organization which is created under the
law, having separate legal existence, separate legal entity and limited
liabilities for the owner and where several people jointly invest money to earn
profit.
 |
Stream engines of
James Watt:
Memorandum of
Industrial Revolution
|
Features of Joint Stock Company
At
present in the era of large scale of business, the significance of this type
of business is unlimited. This type of business possesses some features
which has given it separate status than all other type of business. The
features of Joint Stock Company are described below:
·
Joint Stock Company is legally formed. This business is
formed under the prevailing law of the state. Since, it is formed legally; its
formation is complex and formal. Number of its member is limited by law. In
case of private limited company the number is minimum two and maximum 50 and
for public limited company the minimum number is seven and the maximum is
limited by the number of shares.
·
Joint Stock Business is an enthusiastic organization. Several
people willingly comes together to form and operate company business. Any
member can leave the business easily through transfer of his share. And anyone
can become a member through buying its share.
·
Since, it is legally formed, it has legal personality. Legal
personality means enjoying legal status and rights like a person being a
nonperson entity. Company independently can enter in to contract, do
transactions and can take legal action if necessary. Other party also has the
right to get to court against the company.
·
Since, company is formed legally; its dissolution must be
done under formal legal system. In this way it owns the status of continued
existence. The company does not dissolute with the death of any shareholder,
bankruptcy or transfer of share.
·
The company has to use a seal of its own name because of its
being a legal personality. Use of this seal is mandatory for all the operations
and papers and documents of the company.
·
The total capital of the company is divided in to several
small portions legally. Each of the unit is called a share. Company accumulates
capital by selling the share. For this reason, it is called share capital. Any
person of age more than eighteen or any institution can become a member by
buying its shares. Because of more member and the opportunities to collect
capital by selling share, it can arrange huge capital.
·
Management is totally separate from the ownership in company
business. The owners of company business do not take part in the operational
activities directly like the sole proprietorship firm or a partnership firm.
Management responsibility is born by another group of salaried people. The
directors or owners only take part in the policy level of works.
·
The liability of the member of the company is limited. It is
not unlimited like the sole proprietorship business or partnership business.
Member’s liability is limited by the share value or commitment. Limited by
share means a person shall be liable for the amount of share he/she has
purchase. For example, if a person buys 100 share of $.100.00 each; in that
case his liability shall be limited to $. 10,000.00. On the other hand, limited
by commitment means the amount of share is committed to be purchased by a
person and his/she will be liable up to hi/her commitment.
·
In operation and management of company business, democratic
culture and values are followed. Shareholders elect the board of directors
through direct vote and the business is run by the decisions of the board of
directors.
Types of Joint Stock Company
Various
changes of the socio-economic condition of the world society and the
developmental touch influence the business world. As a result, large scale of
business in the form of joint stock companies evolved to surpass the
limitations of sole proprietorship and partnership business. Limited company is
well known over all the business with joint ownership. In many countries,
limited companies are mainly divided in to two categories: a) Private Limited
Company; and b) Public Limited Company
Private Limited Company
The
company in which numbers of shareholder are limited to minimum two and maximum
fifty and where the shares are not easily transferable they are called Private
Limited Company. The size of this type of limited company is usually smaller
because of limited members and capital. According to law, the minimum numbers
of member to be at least two in this type of company.
Public Limited Company
The
company in which minimum numbers of member is seven and maximum is limited by
the number of shares as mentioned in the memorandum of association, can make
invitation for subscription of shares and debentures, and shares are easily
transferable is called a Public Limited Company. Public Limited Company can
increase the number of members of the company by changing the memorandum of
association. As per law this type of company must have at least three
directors.
Importance of Joint Stock Company
At
present business world, like the sole proprietorship business company form on
the basis of joint ownership is also very popular. Besides, forming large size
of business it is possible to create employment opportunity for a larger group
of people. Employment does not only eliminate unemployment but also enhances
the standard of living and per capital income. Moreover, because of unlimited
liability in case of sole
proprietorship and partnership
business, large scale of investment in risky venture is not possible which
is possible by joint stock companies. Besides, Joint stock companies are more
suitable for high technology based industry. Because the large amount of
capital required to set up this type of business which can be procured through
selling shares to public in the public limited company. As a result,
involvement in the industrial development of the country increases. Through
Joint Stock Company business can expand internationally and relationship among
the countries is strengthened. At present many Multi-National Companies (MNC’s)
are running their business worldwide. In this ways, company of one country
develops relationship with another through opening their business branch in
that country.
Process of Formation of a Company
Formation
of a company is done through four continuous stages. These are:
1.
Taking Initiative
At
this stage, people interested to form the company comes together to take
decision about the probable name of the company, type of the company, amount of
capital, ways to raise fund, address of the company etc. The entrepreneur fixes
the possible name of the company and takes certificates from the Registrar of
Joint Stock Company.
2.
Preparation of Documents
At
this stage, the entrepreneur of the business prepares two important documents
for the business. One is called Memorandum of Association and the other one is
Memorandum of Articles. Memorandum of Association is called the main documents
of limited company. It is also called the main deed, certificate or
constitution of the company. Various important issues like name of the company,
registered address, objective of business, amount of capital, responsibilities
of the shareholders, minimum subscription etc. are incorporated in it. On the
other hand, Memorandum of Articles incorporates all the necessary internal
operational procedures of the business.
3.
Collection of Registration
At
this stage, for registration of the company, application for registration is
collected paying a certain amount of fees. The application form is submitted to
the registrar of the Joint Stock Company along with other necessary documents.
If the registrar is satisfied after receiving the application fee, all the
related documents then he enlist the company in the register book and gives
certificate of registration. Private Limited Company can commence its business
after receiving this document, but Public Limited Company has to wait for the
Business Commencement Certificate from the Registrar to launch the business.
4.
Business Commencement
To
collect the business commencement certificate for launching business operation
of the public limited company, application to be made to the registrar along
with declaration of minimum subscription of capital by the directors and
Prospectus to issue share to the public with other important documents. If all
the documents are found correct and the registrar is satisfied, then he
provides business commencement certificate to the company. Public limited
company can commence business after receiving this document.
End
Really nice reading
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