04-12-2012, 03:41 PM
joint stock company
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INTRODUCTION
Meaning
A company or a joint stock company is an enterprise established through a process of law for undertaking (usually) a business venture. A company is an artificial person existing in the eyes of law and distinct from its members. It has a share capital divided into shares, the owners of which are known as members or shareholders. Insolvency or death of a member has no effect on the life of the company.
Section 3(1) (i) of the Companies Act, 1956 defines a company as “ A company formed and registered under this Act or an existing company.” An existing company means “ A company formed and registered under any of the previous company laws.” The term ‘company’ has not been much clarified by the companies Act. Let us look at some definitions of the term for better understanding.
According to Chief Justice Marshal “ A corporation is an artificial being,invisible, intangibal, existing only in contemplation of the.”
According to Professor Haney “ A company is an artificial person created by law, having separate entity with a perpetual succession and a common seal.”
Characteristics ( Features ) of a company
• Incorporation :- A company is an artificial person created through a process of law, i.e., the companies act,1956 having existence distinct from its members.
• Separate Legal Entity :- A company is a separate legal entity from its share holders. It can own property, enter into contract, conduct business, sue or be sued. The activities and the working is regulated by its memorandum of Association, Articles of Association and provisions of the Companies Act. Anyone can take legal action against the company and not the individual shareholder.
• Perpetual Existence :- A company is not affected by the death, lunancy, or bankruptcy of its members or shareholders.
• Limited Liability :- Liability of the members of the company is limited (though not in all the cases ) to the value of the shares subscribed by each of them.
• Transferability of shares :- The shares of a company are normally freely transferable in the case of public companies whereas they are not so in case of private companies.
• Management and Ownership are separate :- A company is not managed by all the members but by their elected representatives called Directors. In other words, management and ownership are separate.
• Common Seal :- Every company has its own common seal which is affixed on all the important documents of the company.
Classes or kinds of shares
Capital of a company is divided into units of small denomination called a share. Preference share and Equity shares are defined by the Companies Act, 1956 as follows:
1. Preference Shares [ Section 85(1) ] : Preference shares are the shares that carry the following two rights :
(i) Preferential right of dividend to be paid as fixed amount or an amount calculated at a fix rate.
(ii) On winding up or repayment of capital, a preferential right to be repaid the amount of capital before any amount is paid to the equity shareholders.
Classes of preference shares
we may broadly classify the preference shares as:
(i) With reference to dividend
(ii) With reference to participation in profits
(iii) With reference to convertibility and
(iv) With reference to redemption.
(i) With reference to dividend
Cumulative preference shares :- Cumulative preference shares are those preference shares which carry right to receive arrears of dividend before dividend is paid to the equity shareholders. For example, a company has 10,000 7% preference shares of Rs. 100 each and dividend for the years 2007 and 2008 has not been paid. The company earn sufficient profits in the year 2009. In this case, the company shall pay Rs. 2,10,000 as dividend for three years to the preference shareholders.
Non-cumulative preference shares :- Non-cumulative preference shares are those shares which do not carry right to receive arrears of dividend. In the above example, preference shareholders shall be entitled to receive dividend only for the year 2009, i.e., Rs. 70,000.
(ii) With reference to participation in profits
Participation preference shares :- The Articles of Association may have a provision to the effect that after dividend has been paid at the specified rate, the holders of preference shares will have the right to participate in the remaining profits. The preference shares carrying this right are called participating preference shares.
Non - Participating preference shares :- The preference shares which do not carry the right to participate in the profits remaining after equity shareholders have been paid dividend are Non - Participating preference shares.
(iii) With reference to convertibility
Convertible Preference Shares :- Convertible Preference Shares are those preference shares which carry a right to be converted into equity shares.
Non-Convertible Preference Shares :- Non- Convertible Preference Shares are those preference shares which do not carry a right to be converted into equity shares.
(iv) With reference to redemption
Redeemable preference shares :- Redeemable preference shares are those preference shares the amount of which can be returned by the company to the holders of such shares after the time specified for their repayment or at a time earlier to it. The repayment of amount is termed as Redemption.
Irredeemable preference shares :- Irredeemable preference shares are those preference shares the amount of which cannot be returned by the company to the holders of such shares unless the company is wound up.