Joint Stock Company


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Economics Presentation on JSC and Stock Exchange

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Joint Stock Company

  2. 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. 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. 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. 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. 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. 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. 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 capital1. 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. 9. Characteristics of JSC (Contd.) Separation of ownership and management1. 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 Entity1. 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.
  10. 10. Promotion is the discovery of ideas and organization of funds,property and skill to run the business for the purpose of earningincome.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.
  11. 11. 4) Financial Sources 5) Preparation of Essential Documents like Memorandum, Articles and Prospectus of company.The promoters carryout these various activities to give thecompany its physical shape in the form of • Giving a name to the company • Sanctioning of Capital Issue
  12. 12. The second stage for establishment1)Filing of Document: Following documents are to be submitted by the promoters in the Registrar‟s officea) 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.
  13. 13. d) Written Consent of Directorse) 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) Prospectusg) Statutory Declaration – stating thatall legal formalities have been completed.
  14. 14. 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 Articles3) Certificate of Incorporation - If the registrar finds all the documents right, he issues the certificate of incorporation to promoters.
  15. 15. 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 – requiresthe fulfilment of following conditionsa) Issue of Prospectus: A company has to issue prospectus for selling shares and debentures to public.
  16. 16.  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
  17. 17. 1) On the basis of Incorporationa) 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 England2) Statutory Companiesi) 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.
  18. 18. Example: Reserve Bank of India, State Bank of India, Life Insurance Corporation3) 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
  19. 19. On the basis of liability of its members1)Companies Limited by Sharesi) 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 company2) Companies Limited by Guaranteei) 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.
  20. 20. 3) Unlimited Companiesi) 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 Membership1) Private Limited Company A private limited company is the one which by its articlesi) Limits the maximum number of its members to 50, minimum being 2.
  21. 21. ii) Places some restriction on the transfer of its sharesiii) Prohibits any invitation by prospectus or otherwise to the general public to subscribe to any of its shares or debenturesiv) A private company must used the word „Private Limited‟ after its name.2) Public Limited Companyi) 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.
  22. 22. On the basis of Ownership1) Government Companyi) 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.
  23. 23. On the basis of Shareholding1) Holding Companiesi) 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 Companiesi) A company in which another company holds a minimum of 51% of share capital i.e. holding company is known as subsidiary company.
  24. 24. Private Limited Company Public Limited Company1. Membership: Minimum membership 2, Maximum Minimum membership 7, Maximum membership 50 membership unlimited2. 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 directors4. Transfer of Shares: The shares are not freely transferable Shares are freely transferable.
  25. 25. 5. Issue of Prospectus: It is allowed to issue prospectus It can issue prospectus6. Commencement of Business: It can start the business after the It requires trading certificate for starting receipt of certificate of incorporation. business7. 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.
  26. 26. 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 companies12. 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.
  27. 27. A) There are three type of companies -Private Limited, Public Limited and Government companies on the basis of ownershipB) Two types of companies - Indian and Foreign on the basis of nationality.1) Private Limited Companyi) 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.
  28. 28. 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.
  29. 29. 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 Companyi) 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.
  30. 30. examples : Mahanagar Telephone Nigam Limited, Bharat Heavy Electricals Limited, etc.4) Indian Companyi) A company having business operations in India and registered under the Indian Companies Act, 1956ii) company may be formed as a public limited, private limited or government company.5) Foreign Companyi) a company formed and registered outside India having business operations in India.
  31. 31.  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.
  32. 32. 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.
  33. 33. 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:
  34. 34. 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
  35. 35. 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.
  36. 36. 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.
  37. 37. (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.
  38. 38. (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
  39. 39.  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.
  40. 40. Roles of Stock Exchange:1.Raising capital for businesses2.Mobilizing savings for investment3.Facilitating company growth4.Profit sharing5.Corporate governance6.Creating investment opportunities for small investors7.Government capital-raising for development projects8.Barometer of the economy
  41. 41. Market Capitalization Trade ValueRank 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
  42. 42. Bombay Stock8 India 1631 258 Exchange National Stock9 India 1596 801 Exchange of India10 Brazil BM&F Bovespa 1545 868 Australian11 Australia Securities 1454 1062 Exchange12 Germany Deutsche Bores 1429 1628 Shenzhen Stock13 China 1311 3572 Exchange SIX Swiss14 Switzerland 1229 788 Exchange BME Spanish15 Spain 1171 1360 Exchanges
  43. 43. Partnership Joint Stock Company1. 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 succession2. 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 capacity4. Liability: Liability of partners is unlimited joint and Members liability limited to the face value several of shares5. Ownership and Management: There is no difference in ownership and There is no difference in ownership and management management
  44. 44. 6. Flexibility: More flexible, compared to Joint Stock Less flexible compared to partnership firm Companies7. 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 partners8. Business Secrecy: Can be maintained to a certain extent No business secrecy9. Government Regulation: Minimum government regulation Strict and excessive government regulation10. Taxation: Less compared to joint stock companies Subject to heavy taxation
  45. 45. 11. Decision making: Quick decision making Delay in decision making12.Economies of scale: Less economies of scale as compared to Joint Stock Enjoys economies of scale as it undertakes Companies business on a large scale13.Bargaining Power: Strong bargaining power Generally weak bargaining power14.Contractwith customers & employees: Close contact with customers and employees No contacts with customers and employees15.Legal status: No legal status Possesses and a legal status16.Act: Governed by Partnership Act, 1932 Governed by Companies Act, 1956
  46. 46. (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
  47. 47. (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
  48. 48.  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