A joint stock company is said to be an artificial person created by law, having a separate entity with perpetual succession and a common seal
L. H. Haney has defined joint stock company as “voluntary association of individuals for the profits, having a capital divided into transferable shares, the ownership of which is the condition of membership”.
According to Justice Lindley, “A company is an association of many persons who contribute money or money’s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.
The above definitions reveal that a joint stock company represents an incorporated association of persons who contribute money to a common stock known as capital of the company. The capital of a company is divided into shares or stock of fixed amount and every member purchases a number of shares in the company. Thus, the capital of the company is held jointly by the shareholdes. That is why, it is known as a ‘joint stock company’ independent from that of its members. Its shares are transferable and its life is not affected by the incoming and outgoing of its members.
The salient features of a joint stock company are as under :
1. Distinct Legal Entity: A company is an artificial person created by law. So, it has an existence independent of its members. It can own property. enter into contracts in its own name and conduct any lawful business. It can sue and can be sued. Shareholders are neither the owners nor the agents of the company. So, a shareholder cannot be held liable for the acts of the company and vice-versa.
2. Perpetual Existence : A joint stock company has a perpetual succession. Its existence is not affected by the death, lunacy or bankruptcy of its members. It’s old shareholders may go by selling their share and new shareholders may come, but the existence of the company is not affected as the company is created by law.
3. Limited Liability: Since the company has a separate legal entity, its members cannot be held liable for the debts of the company. The liability of every member of a limited company is limited to the nominal value of the shares subscribed by him to the amount of guarantee given by him. A member cannot be asked to pay more than what is due from him in respect of shares allotted to him if the assets of the company are not sufficient to meet fully the claim of its creditors.
4. Transferability of Shares: The shares of companies are transferable except in case of private companies. Every shareholder of a public limited company is free to transfer the shares held by him to anybody else.
5. Separation of Ownership and Management : Separation of ownership and management has become an important feature of joint stock companies. The number of persons who hold the shares of a company is generally very large. Shareholders have no right to participate in the day-to-day administration of the affairs of the company. They have the right to elect representative or directors who will manage the company.
6. Separate Property: A company, being a legal person, is capable of owning, using and disposing of property in its name. Shareholders are not the joint owners of the company’s property.
7. Common Seal: As an artificial person, a company cannot act and sign itself. It acts through human beings known as directors. All the acts of the company done through the directors are authenticated by the common seal of the company. The common seal of a company is affixed on all important documents as a token of the company’s approval. The common seal is the official signature of the company. Any document which does not bear the common seal of the company is not binding on the company.
