Meaning and Types of Joint Stock Company

Meaning and Definition of Joint Stock Company

A sole trading and partnership business could not meet the requirement of large-scale organization. Both of them have limited fund and unlimited liability. There is a lack of managerial ability in sole trading and partnership firm. So, the joint stock company was established. A joint stock company is established under the Company Act, 2053.

The joint stock company is an association of person having a separate legal existence, perpetual succession, common seal, common capital etc. The joint stock company divides its capital into a large number of parts with each value where each part of capital is called share. The person who holds the share is called shareholders of the company.

The company is managed by the board of directors who are the representative of shareholders. The member of the board is elected by the shareholders.

According to L.H. Haney, “A joint stock company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership. Again a company is an artificial person created by law having a separate legal entity with a perpetual succession and a common seal."

Therefore, a joint stock company is a corporate organization having a separate legal existence, perpetual succession, common seal, common capital etc. managed by the representatives.

Types of Joint Stock Company

On the basis of Incorporation

A joint stock company formed on the basis of incorporation can be classified below:

1. Chartered company:
   A company which is incorporated under Royal Charter issued by the king or Head of the state is known as Chartered Company. Under this charter, certain exclusive rights and privilege are granted to the company for undertaking certain commercial activities. The Bank of England, the East India Company, The charter bank of Australia are some of the examples of the chartered company. These companies are no longer formed in any country.
   
   
2. Statutory Company:
   A company which is formed under a special act of Parliament is known as Statutory Company. A Parliament passes a special act to form such company. The objects, powers, rights and responsibilities are clearly defined in the Act. When a company requires special rights and power these type of companies are established. Generally, companies for public utility services are formed. In our country, several such Acts have been passed. For example, Nepal Rastra Bank, Nepal Industrial Development Corporation, RNAC, Karmachari Sanchaya Kosh, etc.
   
   
3. Registered Company:
   A company which is established by registering under the office of the Company Registrar, Company Act 2053 is known as Registered Company. Every activity and formation are governed by the provisions of the Company Act. Himal Cement Company, Bhirkuti Paper and Pulp Limited etc. are some examples of the registered company.

On the basis of Liability

According to the liability, the companies are classified into three groups:

1. Limited Liability:
   Under this type of company, the liability of shareholders is limited to the extent of the value of shares held or the amount guaranteed by them. Hence, the shareholder is not responsible for paying beyond the face value of shares. This type of company is the most common in actual practice.
   
   
2. Unlimited Liability:
   The Company which is registered without limiting the liability of shareholders to the value of shares are called unlimitedliability company. In this company, the liability of the shareholders is unlimited like the partner in Partnership Company. The shareholder's personal properties can be used to meet the obligations. This type of company is found in the present world.
   
   
3. Limited Liability by Guarantee:
   The Company where a shareholder is limited to pay a specific amount as a guarantee at the time of winding up is called a limited liability by guarantee. The guarantee amount is specified in Memorandum of Association. They may or may not have share capital. It gives the written guarantee that members will pay up to a certain fixed amount in the event of the liquidation of the company. This type of company promotes art, literature, sports, education and other non-business activities.

On the basis of Number of Members

1. Private Limited Company: According to the Company Act, a private limited company is one which,

• restricts the right to transfer its shares
• limits the member of shareholders to 50 only
• prohibits any invitation to the public to subscribe for any shares or debentures

A private limited company must always follow this articles. A private company can be formed with one member but the maximum number of shareholders cannot exceed fifty. It cannot issue share to public for subscription. A private company must use the words ‘Private Limited’ (Pvt. Ltd.) in its name.

2. Public Limited Company: According to the section 2 of the Company Act 2053, a public limited company means any company incorporated under this act. The minimum number for formation is seven but there is no restriction on the maximum number. It must issue the prospectus for inviting people to purchase their shares. It must have a certificate of commencement and certificate of incorporation before starting its business. The shareholders are free to sell their shares in the market. A public limited company must use the words 'Limited' (Ltd.) in its name.

Differences between Private and Public Company

On the basis of Ownership

1. Government Company: A government company is a company in which not less than 51% of the paid-up share is held by the Central or State Government or partly by both central and state governments. Since the government has the majority of the share so all the management of the company is taken over by the government authority. Nepal Dairy Development Corporation, Janakpur Cigarette factory, Birgunj Sugar Mill Ltd. etc. are some example of the government companies.
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2. Non-government Company:. The company is owned, managed and controlled by the private sector. It needs to follow some legal formalities from registration of the company. The government does not interfere in the regular managerial activities. Kumari Bank Limited, General Finance Company are some example of the non-government company.

References:

Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal.Business Studies.Kathmandu: Taleju Prakashan, 2067.

Pant, Prem R., et al.Business Studies.Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.