Economics Presentation on JSC and Stock Exchange

1. SL.NO. NAME ROLL.NO.
1 ARITRA BANERJEE B070543CE
2 AVINASH KUMAR B070462CE
3 B.JAGADEESH REDDY B070549CE
4 MAYANK PANWAR B070311CE
5 PERALA SANGEETH KUMAR B070587CE
6 RAGHUL RAVINDRAN B070423CE
7 SRIRAM KIRAN VALAVALA B070449CE

2.  Definition
 A Joint Stock Company is a voluntary association of
individuals for profit, having its capital divided into
transferable shares, the ownership of which is the condition
of membership.
 A company is an incorporated association of persons
formed usually for the pursuit of some commercial purpose.
 Section 3(1) of Indian Companies Act, 1956-Company
means a company formed and registered under this Act or
an existing company
• Existing company means a company formed and
registered under any of the previous company laws

3.  A JSC is a type of corporation or partnership involving two or
more individuals that own shares of stock in the company.
 Certificates of ownership ("shares") are issued by the company
in return for each financial contribution.
 The shareholders are free to transfer their ownership interest at
any time by selling their shareholding to others.

4.  A voluntary association of persons who generally contribute
capital to carry on a particular type of business.
 Persons who contribute capital become members of the
company.
 Company has a legal existence separate from its members,
which means even if its members die, the company remains in
existence.
 This type of company needs huge capital investment.
 The total capital of a JSC is called share capital and it is
divided into a number of units called shares.
 Members are also called shareholders.

5.  In 1250, in Toulouse, France, Bazacle Milling Company
traded 96 shares whose value depended on the profit of the
company.
 In 1288, a Swedish company, Stora documented transfer of
shares.
 In modern history, the earliest recognized company was the
British East India Company, was one of the most famous joint-
stock companies.
 In 1602, the Dutch East India Company issued shares on
the Amsterdam Stock Exchange.
 The first JSC to be implemented in the America were
The Virginia Company and The Plymouth Company.

6.  It‟s a separate legal entity, distinct from the people engaged in it.
 It involves three sets of economic actors:
1. shareholders - provide financial capital in return for a share in
the profits,
2. directors – Their role is to:
 protect the interest of the share holders,
 to ensure the company is working within the law
 it does not trade in cases of bankruptcy.
3. employees - who work but, are legally not a part of the
company

7. Characteristics of JSC (Contd.)
 Compulsory Incorporation
a voluntary association of persons formed and incorporated
under the existing law.
 Artificial person
created by legal process and not by natural birth. Even though
it has no natural personality, it has legal personality
 Common Seal
every company by law must have a common seal on which its
name is engraved. The common seal can serve as its
signature.

8. Characteristics of JSC (Contd.)
 Perpetual succession
men may come and men may go but a company remains
forever. It can be wound up only under the provisions of the
act.
 Limited liability
usually the liability of members of a company is limited to
the extent of uncalled or unpaid value of shares held by them.
 Share capital
1. The capital required by the company is raised by issuing
shares.
2. The member who holds the shares of a company can transfer
its ownership any other person, without the company‟s
permission.

9. Characteristics of JSC (Contd.)
 Separation of ownership and management
1. The shareholders do not take active part in the everyday
affairs of the company.
2. Elected representatives known as Directors, who with the
help of managers and employees manage the company.
 Legal Entity
1. It has separate legal existence compared to its members.
2. The members cannot be personally held responsible for the
acts of the company.
 Large membership
Owned by a larger number of members.

11. Promotion is the discovery of ideas and organization of funds,
property and skill to run the business for the purpose of earning
income.
Steps involved
1) Idea about Business
2) Investigation- make out plans as regards to the
availability of resources like capital, means of
transportation, labour, electricity, gas ,water, etc.
3) Assembling various Factors- like arrangement of
licences, copyrights, employment of necessary
employees, etc.

12. 4) Financial Sources
5) Preparation of Essential Documents like Memorandum,
Articles and Prospectus of company.
The promoters carryout these various activities to give the
company its physical shape in the form of
• Giving a name to the company
• Sanctioning of Capital Issue

13. The second stage for establishment
1)Filing of Document: Following documents are to be
submitted by the promoters in the Registrar‟s office
a) Memorandum of Association – indicates
name, address, authorized capital etc.
b) Articles of Association – contains
laws and rules for internal control and management of a
company.
c) List of Directors -
list of the names, occupations, addresses, along with the
declaration of director.

14. d) Written Consent of Directors
e) Declaration of Qualifying Shares-
A declaration certificate showing that the directors have take
n up qualifying shares and have paid up the money or pay it in
near future to the registrar.
f) Prospectus
g) Statutory Declaration – stating that
all legal formalities have been completed.

15. 2) Payment of Registration Fee -
the registration fee is paid to the Registrar for
• Application and documents filing fee
• Registration fee
• Stamp fee on Memorandum and Articles
3) Certificate of Incorporation -
If the registrar finds all the documents right, he issues
the certificate of incorporation to promoters.

16. After getting certificate of incorporation, the next stage
is to make arrangement for raising capital by
issuing
i) Shares
ii) Debentures
iii) Savings CERTIFICATE OF COMMENCEMENT – requires
the fulfilment of following conditions
a) Issue of Prospectus:
A company has to issue prospectus for selling shares and
debentures to public.

17.  b) Allotment of Shares
 c) Minimum Subscription -
certified that the shares have been allotted up to an amount, not
less than the minimum subscription.
 The Fourth and Final Stage
After verifying the foregoing documents, the registrar
issues the certificate of commencement of business

18. 1) On the basis of Incorporation
a) Chartered Companies
i) Such companies are incorporated under a Royal Character
(order) issued by the King or Queen or Head of the State.
ii) Such companies have exclusive rights, powers and
privileges under the royal charter.
Example: East India Company, Bank of England
2) Statutory Companies
i) Such companies are formed under the special act passed by
the Parliament or State Legislature.
ii) The powers which can be exercised by such companies are
defined by the Acts that constitute them.

19. Example: Reserve Bank of India, State Bank of India, Life
Insurance Corporation
3) Registered Companies
i) A company incorporated under the Indian Companies Act,
1956 is called Registered Company.
ii) The powers exercised by such companies are defined by the
Companies Act and Memorandum of Association.
iii) A registered company can be a Private Ltd. Company or a
Public Ltd. Company

20. On the basis of liability of its members
1)Companies Limited by Shares
i) the liability of the members is limited to the extent of the
unpaid value on shares.
ii) Such companies may be a Public limited company or a
Private limited company
2) Companies Limited by Guarantee
i) Member guarantees to pay a fixed sum of money (specified
in the memorandum) at the time of liquidation of the
company for payment of companies liabilities.
ii) Such companies are formed without a share capital for non –
trading (non – profit) purpose.
iii) Depend on entrance and subscription fees as they do not
have share capital.

21. 3) Unlimited Companies
i) The liability of the members is unlimited.
ii) In the event of winding up of the company. the private
property of the member can be used to pay the debts of the
firm.
iii)Due to the high risk involved, such companies are not found
in India.
On the basis of Membership
1) Private Limited Company
A private limited company is the one which by its articles
i) Limits the maximum number of its members to 50, minimum
being 2.

22. ii) Places some restriction on the transfer of its shares
iii) Prohibits any invitation by prospectus or otherwise to the
general public to subscribe to any of its shares or debentures
iv) A private company must used the word „Private Limited‟
after its name.
2) Public Limited Company
i) It must have atleast 3 directors – 1/3rd of the directors are
permanent and 2/3rd are subject to retirement by rotation out of
which 1/3rd retire every year.
ii) Shares can be freely transferred in a public company.
iii) In case of a public company Statutory Meeting is
compulsory.

23. On the basis of Ownership
1) Government Company
i) Company in which not less than 51% of the paid – up share
capital is held by the Central Government and / or by any
State Government(s) or partly by the Central Government
and partly by one or more State Governments.
ii) Follows provisions of the Indian Companies Act, 1956.
Examples: Hindustan Machine Tools, Oil and Natural Gas
Commission etc.
2) Foreign Companies:
i) company which is registered in one country but carries out
its operations in India.

24. On the basis of Shareholding
1) Holding Companies
i) A company which controls another company by
holding a minimum 51% of shares and thereby
controlling the composition of the board of the
company.
2) Subsidiary Companies
i) A company in which another company holds a
minimum of 51% of share capital i.e. holding
company is known as subsidiary company.

25. Private Limited Company Public Limited Company
1. Membership:
Minimum membership 2, Maximum Minimum membership 7, Maximum
membership 50 membership unlimited
2. Formation
Comparatively simple, certificate of Comparatively difficult as the procedure
incorporation is adequate is lengthy.
3. Number of Directors:
It must have at least two directors It must have at least three directors
4. Transfer of Shares:
The shares are not freely transferable Shares are freely transferable.

26. 5. Issue of Prospectus:
It is allowed to issue prospectus It can issue prospectus
6. Commencement of Business:
It can start the business after the It requires trading certificate for starting
receipt of certificate of incorporation. business
7. Suitability:
Suitable for business on a small scale Suitable for large – scale business.
8. Invitation:
It cannot invite public to subscribe for It invites public to purchase securities of
securities of the company the company.

27. 9. Allotment:
It can allot shares immediately after Shares cannot be allotted unless
incorporation minimum subscription is collected.
10. Qualification shares:
The directors need not hold The directors have to purchase some
qualification shares qualification shares to become the
director.
11. Directorship:
There is no restriction on the number A director cannot be a director of more
of directorship than 20 companies
12. Quorum:
Two members present in the meeting is a Five members present in the meetings is
quorum at general meeting a quorum at general meeting.

28. A) There are three type of companies -Private Limited, Public
Limited and Government companies on the basis of ownership
B) Two types of companies - Indian and Foreign on the basis of
nationality.
1) Private Limited Company
i) can be formed by at least two individuals having minimum
paid–up capital of not less than Rupees one lakh.
ii) total membership of these companies cannot exceed 50.

29. iii) shares allotted to its members are also not freely
transferable between them.
iv) not allowed to raise money from the public through open
invitation.
v) are required to use “Private Limited” after their names.
examples : Combined Marketing Services Private Limited,
Indian Publishers and Distributors Private Limited Limited,
etc.
2) Public Limited Company
i) Min of 7members are required, no restriction on max no of
members
ii) must have minimum paid–up capital of Rs. 5 lakhs.
iii) shares allotted to the members are freely transferable.

30. iv) can raise funds from general public through open invitations
by selling its shares or accepting fixed deposits.
v) required to write either „public limited‟ or „limited‟ after their
names.
Examples :Hyundai Motors India Limited, Steel Authority of
India Limited, Jhandu Pharmaceuticals Limited etc.
3) Government Company
i) the Govt (either state or central Gvt or both) holds a majority
share capital i.e., not less than 51%.
ii) companies having less than 51% share holding by the govt
can also be called Govt companies provided control and
management lies with the Govt.

31. examples : Mahanagar Telephone Nigam Limited, Bharat Heavy
Electricals Limited, etc.
4) Indian Company
i) A company having business operations in India and registered
under the Indian Companies Act, 1956
ii) company may be formed as a public limited, private limited
or government company.
5) Foreign Company
i) a company formed and registered outside India having
business operations in India.

32.  Indian Companies Act 1956 defines share as “a share in the
share capital of a company and includes stock except when a
distinction between stock and shares is expressed and
implied”.
 Owned capital of a company divided into a large number of
equal parts or units. Each such part having the same face value
is called share.

33. 1.Equity Shares(Ordinary shares):
Equity shares are those shares which do not have, preferential
rights with regards to
(1) Payment of dividend
(2) Repayment (return) of capital, in case of winding up of the
company.
2.Preference Shares:
Preference shares are those shares which have preferential
rights over the equity shares with regards to:
(1)Repayment of capital in the event of liquidation / winding up
of the company.
(2)Payment of dividend.

34. Classification of Preference Shares:
(I) On the basis of participation:
(a) Participating Preference Shares
(b) Non – participating Preference Shares
(II) On the basis of right to accumulate dividend:
(a) Cumulative Preference Share
(b) Non–Cumulative Preference Shares:

35. Classification of Preference Shares:
(Contd.)
(III) On the basis of Redemption:
(a) Redeemable Preference Shares
(b) Irredeemable/Non – redeemable Preference Shares
(IV) On the basis of Conversion:
(a) Convertible Preference Shares
(b) Non – Convertible Preference Shares

36. 3.Bonus Shares:
A part of the company‟s profit is transferred to reserves.
Out of such reserves a company issues bonus shares. Such
shares are issued to the equity share holders of the company
free of charge. Infact bonus shares are also equity shares.
4.Deferred Shares / Founder Shares / Management Shares:
These shares are issued to the promoters of the company.
They rank last of all shares in respect of payment of dividend
and repayment of capital. Deferred shares are usually of a
lower face value. Only private companies can issue deferred
shares.

37. 5.Qualification Shares:
The articles of a company usually require a director to
hold certain number of shares to be eligible as a director. Such
shares are called qualification shares.
The directors must obtain qualification shares within 6
months from his appointment as a director. If he does not
purchase the qualification shares within the prescribed period
he ceases to be the director of the company. He can purchase
the shares from the company itself or from the stock market.

38. (a)Statutory Meeting
The statutory meeting is held to inform the shareholders in
respect of matters relating to:
 Allotment of shares
 Receipts and payments made by the company, etc.
 Incorporation of the company.
 Details of preliminary expenses.
 Details of the contracts concluded by the company or changes
in the existing contract.
 Details of further prospects of the company
 Any special matters which require approval of the
shareholders is placed before them at this meeting.

39. (b)Annual General Meeting
Every company shall in each year hold (in addition to any
other meetings) a general meeting of its shareholders. The
purpose of holding such meeting is to review the progress
and prospects of the company and to elect directors and
auditors, as the case may be.
(c)Extra Ordinary General Meeting
It is general meeting which is held between two annual
general meetings. This meeting is called to discuss
important and urgent matters which cannot be postpone till
the next annual general meeting

40.  A stock exchange is an entity that provides "trading" facilities
for stock brokers and traders to trade stocks, bonds, and
other securities.
 Stock exchanges also provide facilities for issue and
redemption of securities and other financial instruments, and
capital events including the payment of income and dividends.
Securities traded on a stock exchange include shares issued by
companies, unit trusts, derivatives, pooled investment products
and bonds.

41. Roles of Stock Exchange:
1.Raising capital for businesses
2.Mobilizing savings for investment
3.Facilitating company growth
4.Profit sharing
5.Corporate governance
6.Creating investment opportunities for small investors
7.Government capital-raising for development projects
8.Barometer of the economy

42. Market Capitalization Trade Value
Rank Economy Stock Exchange
(USD Billions) (USD Billions)
United States
1 NYSE Euronext 15970 19813
and Europe
United States
2 NASDAQ OMX 4931 13439
and Europe
Tokyo Stock
3 Japan 3827 3787
Exchange
London Stock
4 United Kingdom 3613 2741
Exchange
Shanghai Stock
5 China 2717 4496
Exchange
Hong Kong Stock
6 Hong Kong 2711 1496
Exchange
Toronto Stock
7 Canada 2170 1368
Exchange

43. Bombay Stock
8 India 1631 258
Exchange
National Stock
9 India 1596 801
Exchange of India
10 Brazil BM&F Bovespa 1545 868
Australian
11 Australia Securities 1454 1062
Exchange
12 Germany Deutsche Bores 1429 1628
Shenzhen Stock
13 China 1311 3572
Exchange
SIX Swiss
14 Switzerland 1229 788
Exchange
BME Spanish
15 Spain 1171 1360
Exchanges

44. Partnership Joint Stock Company
1. Meaning:
Here 2 or more people come together for It is voluntary association, artificial person
doing some business and making profit created by law having a common seal and
perpetual succession
2. Formation:
Relatively easy, less legal formalities Formation difficult, too many legal
involved formalities involved.
3. Capital:
It can raise limited capital due to limitation It can raise large capital due to large
on the number of members and their members
capacity
4. Liability:
Liability of partners is unlimited joint and Members liability limited to the face value
several of shares
5. Ownership and Management:
There is no difference in ownership and There is no difference in ownership and
management management

45. 6. Flexibility:
More flexible, compared to Joint Stock Less flexible compared to partnership firm
Companies
7. Continuity and Stability:
Lacks continuity and stability, business may Joint stock company is continuous and
come to an end with death, insolvency and stable, business does not come to an end
insanity of partners with death insolvency or insanity of
partners
8. Business Secrecy:
Can be maintained to a certain extent No business secrecy
9. Government Regulation:
Minimum government regulation Strict and excessive government regulation
10. Taxation:
Less compared to joint stock companies Subject to heavy taxation

46. 11. Decision making:
Quick decision making Delay in decision making
12.Economies of scale:
Less economies of scale as compared to Joint Stock Enjoys economies of scale as it undertakes
Companies business on a large scale
13.Bargaining Power: Strong bargaining power
Generally weak bargaining power
14.Contractwith customers & employees:
Close contact with customers and employees No contacts with customers and employees
15.Legal status:
No legal status Possesses and a legal status
16.Act:
Governed by Partnership Act, 1932 Governed by Companies Act, 1956

47. (i) Large financial resources
(ii) Limited Liability
(iii) Professional management
(iv) Large-scale production
(v) Contribution to society
(vi) Research and Development
(vii) Bargaining Power
(viii) Government Revenue
(ix) Economic Development
(x) Public Confidence
(xi) Long Life

48. (i) Difficult to form
(ii) Excessive government control
(iii) Delay in policy decisions
(iv) Concentration of economic power and wealth in few hands
(v) Labour Disputes
(vi) Lack of Responsibility
(vii) Lack of Secrecy
(viii) Double Taxes
(ix) Lack of contact with customers
(x) Lack of contact with employees
(xi) Conflicts of Interest
(xii) Not suitable for all types of business

49.  where the volume of business is large
 huge financial resources are needed
 suitable for businesses which involve heavy risks
 which require public support and confidence
 Examples: production of pharmaceuticals, machine
manufacturing, information technology, iron and
steel, aluminum, fertilisers, cement