Company (Joint Stock Company): Features, Types and Distinction from Other Forms

Table of Contents

• Meaning and definition of company
• Features/characteristics of company
• Types/classification of companies (basic)
• Merits/advantages of company form
• Demerits/limitations of company form
• Important distinctions (asked frequently)
• Quick recap (1-minute revision)

Meaning and definition of company

A company (joint stock company) is a voluntary association of persons formed and registered under company law to carry on business. It is a separate legal entity distinct from its members, having perpetual succession and generally limited liability.

Exam line: A company is an artificial person created by law, having a separate legal existence, perpetual succession and a common seal (traditional feature).

Features/characteristics of company

1. Separate legal entity: company is different from its members; it can own property and enter contracts in its own name.
2. Artificial legal person: created by law; acts through directors and officers.
3. Perpetual succession: existence is not affected by death/insolvency of members.
4. Limited liability: members’ liability is limited to unpaid value of shares or guarantee amount.
5. Common seal (traditional): official signature of company (many modern laws make it optional).
6. Transferability of shares: especially in public company, shares can be transferred; provides liquidity.
7. Separation of ownership and management: shareholders own; directors/managers manage.
8. Large capital and resources: can raise large funds by issuing shares and debentures.
9. Statutory regulation and disclosure: company has to follow legal provisions and disclosures.

Types/classification of companies (basic)

1) On the basis of liability

• Company limited by shares: liability limited to unpaid amount on shares.
• Company limited by guarantee: liability limited to guarantee amount (often non-profit).
• Unlimited company: members have unlimited liability (rare).

2) On the basis of number of members / access to capital

• Private company: restricts transfer of shares; cannot invite public to subscribe; has limited members.
• Public company: can invite public to subscribe; shares generally freely transferable; larger compliance.

3) On the basis of control

• Holding company: controls another company (subsidiary) by owning majority shares/controlling board.
• Subsidiary company: controlled by holding company.

4) On the basis of ownership

• Government company: majority stake held by government.
• Foreign company: incorporated outside India but operates in India (as per law).

Merits/advantages of company form

• Limited liability encourages investment and risk-taking.
• Large capital can be raised for expansion and modern technology.
• Perpetual succession ensures stability and continuity.
• Professional management due to separation of ownership and management.
• Transferability of shares provides liquidity to investors.
• Better creditworthiness and public confidence due to regulation and disclosure.
• Economies of scale in production, marketing and finance.

Demerits/limitations of company form

• Complex formation and compliance: registration, filings, meetings, audits etc.
• Lack of secrecy due to statutory disclosures.
• Separation of ownership and management may lead to conflicts (agency problem).
• Slow decision-making due to procedures and large scale.
• Possibility of fraud/mismanagement if governance is weak.
• High cost of formation and administration.

Important distinctions (asked frequently)

Private company vs public company (basic differences)

• Invitation to public: private cannot invite public; public can issue shares to public.
• Transfer of shares: restricted in private; generally free in public.
• Members: private has limited number; public can have unlimited members.
• Compliance: public has higher disclosure and compliance.

Company vs partnership (key points)

• Legal status: company separate legal entity; partnership (traditional) no separate legal entity.
• Liability: company limited; partnership generally unlimited.
• Continuity: company perpetual; partnership affected by death/insolvency (unless agreement).
• Management: company by directors; partnership by partners.
• Capital: company large; partnership limited/moderate.

Company vs co-operative (key points)

• Objective: company profit; co-operative service to members.
• Control: company voting by shares; co-operative one member one vote.
• Dividend: company as per profit; co-operative limited dividend + bonus/reserves.

Quick recap (1-minute revision)

• Company: separate legal entity + limited liability + perpetual succession.
• Types: by liability (shares/guarantee/unlimited) and by access (private/public).
• Merits: large capital, stability, limited risk, professional management.
• Limitations: heavy compliance, less secrecy, slower decisions, agency issues.