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

Question 1

Explain features/characteristics of a company.

Accepted Answer

A company has **separate legal entity** distinct from its members and is an **artificial legal person** created by law. It enjoys **perpetual succession**, meaning it continues despite death/insolvency of members. Shareholders generally have **limited liability**. It also shows **separation of ownership and management** and can raise large capital through shares and debentures, though it is regulated by law.

Question 2

Explain types of companies (basic classification).

Accepted Answer

Companies may be classified **by liability** as company limited by shares, company limited by guarantee and unlimited company. They can also be classified **by access to capital/number of members** as **private company** (restricts share transfer and cannot invite public) and **public company** (can invite public subscription and shares are generally transferable). Other classifications include holding/subsidiary and government company.

Question 3

Explain advantages (merits) of company form.

Accepted Answer

Company form provides **limited liability** which reduces risk and encourages investment. It can raise **large capital** for expansion and modern technology. It has **perpetual succession** ensuring stability. Due to separation of ownership and management, it can appoint **professional managers**, and transferability of shares provides liquidity and wider public confidence.

Question 4

Explain disadvantages (limitations) of company form.

Accepted Answer

Company form involves **complex legal formalities** and high compliance costs (registration, filings, audits). It has **less secrecy** due to statutory disclosures. Separation of ownership and management may lead to **conflict of interest** and misuse if governance is weak. Decision-making can become **slow** due to procedures and large-scale operations.

Question 5

Differentiate between private company and public company.

Accepted Answer

A **private company** cannot invite the public to subscribe for shares and generally restricts transfer of shares; it has limited members and relatively lower compliance. A **public company** can invite public subscription, shares are generally freely transferable, membership can be large, and it has higher disclosure and compliance requirements.

Question 6

Differentiate between company and partnership.

Accepted Answer

A **company** is a separate legal entity with **limited liability** and **perpetual succession** and is managed by directors/professionals. A **partnership** (traditional) has no separate legal entity and partners generally have **unlimited liability**. Partnership continuity may be affected by death/insolvency (unless agreement) and partners directly manage business with mutual agency.

Question 7

Define company.

Accepted Answer

A company is an artificial legal person created by law and registered under company law, having separate legal entity and perpetual succession.

Question 8

What is meant by separate legal entity?

Accepted Answer

Separate legal entity means the company is distinct from its members and can own property and enter contracts in its own name.

Question 9

What is limited liability?

Accepted Answer

Limited liability means members’ liability is restricted to the unpaid amount on shares or the guarantee amount, not their personal assets.

Question 10

State any one feature of company.

Accepted Answer

Perpetual succession is a feature of company; it continues despite change in membership.

Question 11

What is a private company?

Accepted Answer

A private company restricts transfer of shares and does not invite the public to subscribe to its shares.

Question 12

State any one merit of company form.

Accepted Answer

Limited liability is a merit of company form as it encourages investment by limiting risk of shareholders.

Question 13

Define company and explain its features in detail.

Accepted Answer

A company (joint stock company) is a voluntary association of persons formed and registered under company law to carry on business. It is an artificial legal person created by law, having a separate legal existence distinct from its members.

**Features of a company:**
1. **Separate legal entity:** Company is distinct from shareholders; it can own property, sue and be sued and enter contracts in its own name.
2. **Artificial legal person:** It is created by law and acts through its directors and officials.
3. **Perpetual succession:** Existence continues even if members change due to death, insolvency or transfer of shares.
4. **Limited liability:** Members’ liability is limited to unpaid amount on shares or guarantee amount, so personal assets are generally protected.
5. **Transferability of shares:** Especially in public companies, shares are transferable, providing liquidity to investors.
6. **Separation of ownership and management:** Shareholders are owners but management is carried by Board of Directors and professional managers.
7. **Large capital raising capacity:** Company can mobilise large funds through issue of shares and debentures and has better credit.
8. **Regulation and disclosure:** Company is governed by law and must follow statutory compliances and disclosures.

Thus, company form is suitable for large-scale business requiring big capital, continuity and limited liability.

Question 14

Explain types of companies and distinguish between private company and public company.

Accepted Answer

**Types of companies:**
1. **On the basis of liability:** (i) Company limited by shares, (ii) Company limited by guarantee, and (iii) Unlimited company.
2. **On the basis of access to capital/number of members:** (i) Private company and (ii) Public company.
3. **On the basis of control:** Holding company and subsidiary company.
4. **On the basis of ownership:** Government company and foreign company.

**Private company vs Public company:** A private company restricts transfer of shares and cannot invite the public to subscribe to its shares. It has limited membership and comparatively lower disclosure requirements. A public company can invite public subscription through issue of shares and securities; its shares are generally freely transferable and it can have a large number of members. Public companies are subject to higher statutory disclosures and stricter compliance. Hence, private company suits closely-held businesses while public company suits large businesses requiring large public capital.

Question 15

Explain merits and demerits of company form of organisation. Also compare company with partnership (key points).

Accepted Answer

**Merits of company:** Company provides limited liability which reduces risk and attracts investors. It can raise large capital for growth and expansion and enjoys perpetual succession ensuring stability. It allows professional management due to separation of ownership and management. Transferability of shares provides liquidity and companies often enjoy better public confidence and creditworthiness.

**Demerits of company:** Formation and operation involve heavy legal formalities, high compliance cost and statutory disclosures, reducing secrecy. Decision-making may be slow due to procedures and size. Separation of ownership and management may create conflicts of interest and mismanagement if corporate governance is weak.

**Company vs Partnership (key points):** Company is a separate legal entity; partnership (traditional) is not. Company offers limited liability and perpetual succession; partnership generally has unlimited liability and may be affected by death/insolvency unless agreement. Company can raise large capital through shares; partnership has limited capital. Management in company is by Board of Directors and managers; in partnership it is by partners with mutual agency. Therefore, company suits large-scale businesses whereas partnership suits small and medium enterprises requiring flexibility.

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

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