Many times you have heard about the word company. There are several companies present in the world. But, what actually a company is? what are the benefits of the company?
From the word company, it doesn't mean a group of people or organization engaged in some commercial activity. There is a lot more to know about a company. So, for that, I am going to tell you that what is a company, its characteristics, merits, and demerits.
What is a Company?
The company form of organization is considered to be the most suitable for organizing business. It has the advantage of attracting huge capital from the public.
A joint-stock company is an artificial person, having a separate legal existence, perpetual succession, and a common seal. There are many international companies like https://www.wipro.com and https://www.tatasteel.com, etc.
Characteristics of a Joint Stock Company
1. Separate Legal Existence
The company has a separate legal entity. A company can carry on business in its own name, it can buy and sell assets in its own name, it can enter into any contract with any outsider with its own name.
The company is separate from its members it has it separate legal existence.
2. Artificial Person
A company does not have a physical body like a natural human being. It is an artificial person created by the law. Its operations are performed by the elected representatives of members, Known as directors, although business is run in the name of the company.
3. Registration
It is legally compulsory for a company to get itself registered under the Companies Act, 2013. Without registration, no company can come into existence.
4. Perpetual Succession
A company has continuous existence independent of its members. A company is created by the law and only law can bring an end to its existence. The death, insolvency, or incapacity of any member does not affect the existence of the company.
Member may come and go but the company goes on forever. The life of a company can come to an end through the legal procedure of winding up.
5. Common Seal
Being an artificial person the company can't sign, therefore, there is a need for a common seal with the name engraved on it. The activities of the company are carried by a group of peole.
Anyone acting on the behalf of the company can use a common seal in place of the signature of the company to bind the company.
Any document which doesn't bear the common seal of the company is not binding to the comapny.
6. Transferability of Shares
The capital of the company is divided into shares. The shares of the company are freely transferable by its members.
A shareholder is free to withdraw his membership from the company by selling his shares. The shares of a private limited company cannot be transferred easily.
7. Separation of Ownership and Control
The company form of business is owned by the shareholders. These shareholders elect their representatives who are called the board of directors of the company.
The directors manage and control the activities of the company by appointing professional experts.
8. Limited Liability
The liability of members of the company is limited to the extent of their share capital of contribution to the company. For example, if a person has purchased 1000 shares of value $10 each, then his liability is up to $10000 only.
Merits of Joint Stock Company
1. Limited Liability
The liability of members of the company is limited to the extent of their share capital of contribution to the company. The limited liability attracts many people to invest their money in company.
2. Transfer of Shares
The share of the company can be easily bought and sold in the market. I the owner of shares is in need of cash, he can easily sell the share and can get cash. The easy transferability of share bring liquidity in investment.
3. Perpetual Succession
The company form of business enjoys perpetual succession. As it has a separate existence, it is formed by law and can only be brought to an end by the law only.
4. Growth and Expansion
In the company form of business, there is more scope of growth and expansion. The company has large resources and its rate of profit is also high. They can easily use a large amount of accrued or retained profit for expansion and growth.
5. Efficient Management
A company form of business has huge funds at its disposal. It can easily afford to hire professional experts to perform managerial and other activities of the business. The hired experts and professionals increase the efficiency of the business.
6. A Large Amount of Capital
The biggest advantage of a company form of business is that it collects a large amount of capital by issuing shares to the general public. The people having small savings can also buy shares of the company because the value of shares is very small.
Demerits of a Joint Stock Company
1. Complexity in Formation
The formation of the company involves a lengthy and complicated procedure. Many legal formalities have to be completed, many documents have to be prepared and submitted. Various permissions have to be obtained.
2. Lack of Secrecy
As per the companies act of 1956, the company is required to provide a lot of information to the office of the registrar of companies. Such information is available to the general public also. So it is difficult to maintain the secrecy of the operation of the company.
3. Impersonal Work Environment
The company is not managed by its owners but is managed by professional managers. These managers get salaries for their service to the company so there is no direct relation between the efforts and the reward. Hence, there is a lack of motivation.
4. Numerous Regulations
The company form of business has to comply with various legal formalities at different stages and there is a penalty if the company fails to meet any formality. It has to maintain a complete record of the transcations.
5. Delay in Decisions
In a company organization, all the important decisions are taken by the board of directors and various people after a long meeting. If the directors do not agree to the decision then another meeting is to be held. In this way, there is a delay in decision-making.
6. Oligarhic Management
The directors have complete control over the company. These people take all the decisions keeping in mind their personal interest and benefit, ignoring the interest of the shareholders and the company.
7. Conflict in Interest
In a company, a various number of people are involved such as shareholders, employees, debenture holders, directors, etc. Each group has a different intention and interest. Due to differences in interest, there are chances of conflict among the members.
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