Joint Stock Company

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
AJointStockCompanyisavoluntaryassociationof
individualsforprofit,havingitscapitaldividedinto
transferableshares,theownershipofwhichisthecondition
ofmembership.
Acompanyisanincorporatedassociationofpersons
formedusuallyforthepursuitofsomecommercialpurpose.
Section3(1)ofIndianCompaniesAct,1956-Company
meansacompanyformedandregisteredunderthisActor
anexistingcompany
•Existingcompanymeansacompanyformedand
registeredunderanyofthepreviouscompanylaws

3. AJSCisatypeofcorporationorpartnershipinvolvingtwoor
moreindividualsthatownsharesofstockinthecompany.
Certificatesofownership("shares")areissuedbythecompany
inreturnforeachfinancialcontribution.
Theshareholdersarefreetotransfertheirownershipinterestat
anytimebysellingtheirshareholdingtoothers.

4. A voluntary associationof persons who generally contribute
capitalto carry ona particular type of business.
Personswho contribute capitalbecome membersof 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 capitaland it is
divided into a number of units called shares.
Membersare also called shareholders.

5. In 1250, in Toulouse, France, BazacleMilling Company
traded 96 shares whose value depended on the profit of the
company.
In 1288, a Swedish company, Storadocumented transfer of
shares.
In modern history, the earliest recognized company was the
BritishEast India Company,was one of the most famous joint-
stock companies.
In 1602, theDutch East India Companyissued shares on
theAmsterdam Stock Exchange.
The first JSC to be implemented in the America were
TheVirginia Companyand ThePlymouth 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. 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.
Characteristics of JSC (Contd.)

8. 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.
Characteristics of JSC (Contd.)

9. 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.
Characteristics of JSC (Contd.)

11. Promotionisthediscoveryofideasandorganizationoffunds,
propertyandskill to run the business for the purpose of earning
income.
Stepsinvolved
1) IdeaaboutBusiness
2) Investigation-make out plans as regards to the
availability of resources like capital, means of
transportation, labour, electricity, gas ,water, etc.
3) AssemblingvariousFactors-like arrangement of
licences, copyrights,employmentofnecessary
employees,etc.

12. 4)FinancialSources
5)PreparationofEssentialDocumentslikeMemorandum,
ArticlesandProspectusofcompany.
Thepromoterscarryoutthesevariousactivitiestogivethe
companyitsphysicalshapeintheformof
•Givinganametothecompany
•SanctioningofCapitalIssue

13. Thesecondstageforestablishment
1)FilingofDocument: Followingdocumentsaretobe
submittedbythepromotersintheRegistrar‟soffice
a) MemorandumofAssociation –indicates
name,address,authorizedcapitaletc.
b) ArticlesofAssociation –contains
lawsandrulesforinternalcontrolandmanagementofa
company.
c) ListofDirectors -
listofthenames,occupations,addresses,alongwiththe
declarationofdirector.

14. d) WrittenConsentofDirectors
e) DeclarationofQualifyingShares-
Adeclarationcertificateshowingthatthedirectors havetake
nupqualifyingsharesandhavepaidupthemoneyorpayitin
nearfuturetotheregistrar.
f) Prospectus
g) StatutoryDeclaration –stating that
alllegalformalitieshavebeencompleted.

15. 2) PaymentofRegistrationFee -
theregistrationfeeis paidtotheRegistrar for
• Applicationanddocumentsfilingfee
• Registrationfee
• StampfeeonMemorandumandArticles
3) CertificateofIncorporation -
Iftheregistrarfindsallthedocumentsright,heissues
thecertificateofincorporationtopromoters.

16. Aftergettingcertificateofincorporation,thenext stage
istomakearrangementforraisingcapital by
issuing
i) Shares
ii)Debentures
iii) Savings CERTIFICATEOFCOMMENCEMENT –requires
thefulfilmentoffollowingconditions
a) IssueofProspectus:
Acompanyhastoissueprospectusforsellingsharesand
debenturestopublic.

17. b) AllotmentofShares
c) MinimumSubscription -
certifiedthattheshareshavebeenallotteduptoanamount,not
lessthantheminimumsubscription.
The Fourth and Final Stage
Afterverifyingtheforegoingdocuments, the registrar
issues the certificateofcommencementof 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 –1/3
rd
of the directors are
permanent and 2/3
rd
are subject to retirement by rotation out of
which 1/3
rd
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. PrivateLimitedCompany PublicLimitedCompany
1.Membership:
Minimummembership2,Maximum
membership50
Minimummembership7,Maximum
membershipunlimited
2.Formation
Comparativelysimple,certificateof
incorporationisadequate
Comparativelydifficultastheprocedure
islengthy.
3.NumberofDirectors:
Itmusthaveatleasttwodirectors Itmusthaveatleastthreedirectors
4.TransferofShares:
ThesharesarenotfreelytransferableSharesarefreelytransferable.

26. 5.IssueofProspectus:
Itisallowedtoissueprospectus Itcanissueprospectus
6.CommencementofBusiness:
Itcanstartthebusinessafterthe
receiptofcertificateofincorporation.
Itrequirestradingcertificateforstarting
business
7.Suitability:
SuitableforbusinessonasmallscaleSuitableforlarge–scalebusiness.
8.Invitation:
Itcannotinvitepublictosubscribefor
securitiesofthecompany
Itinvitespublictopurchasesecuritiesof
thecompany.

27. 9.Allotment:
Itcanallotsharesimmediatelyafter
incorporation
Sharescannotbeallottedunless
minimumsubscriptioniscollected.
10. Qualificationshares:
Thedirectorsneednothold
qualificationshares
Thedirectorshavetopurchasesome
qualificationsharestobecomethe
director.
11. Directorship:
Thereisnorestrictiononthenumber
ofdirectorship
Adirectorcannotbeadirectorofmore
than20companies
12. Quorum:
Twomemberspresentinthemeetingisa
quorumatgeneralmeeting
Fivememberspresentinthemeetingsis
aquorumatgeneralmeeting.

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 Gvtor 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. (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:
Classification of Preference Shares:

35. (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
Classification of Preference Shares:
(Contd.)

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
Thestatutorymeetingisheldtoinformtheshareholdersin
respectofmattersrelatingto:
Allotmentofshares
Receiptsandpaymentsmadebythecompany,etc.
Incorporationofthecompany.
Detailsofpreliminaryexpenses.
Detailsofthecontractsconcludedbythecompanyorchanges
intheexistingcontract.
Detailsoffurtherprospectsofthecompany
Anyspecialmatterswhichrequireapprovalofthe
shareholdersisplacedbeforethematthismeeting.

39. (b)Annual General Meeting
Everycompanyshallineachyearhold(inadditiontoany
othermeetings)ageneralmeetingofitsshareholders.The
purposeofholdingsuchmeetingistoreviewtheprogress
andprospectsofthecompanyandtoelectdirectorsand
auditors,asthecasemaybe.
(c)Extra Ordinary General Meeting
Itisgeneralmeetingwhichisheldbetweentwoannual
generalmeetings.Thismeetingiscalledtodiscuss
importantandurgentmatterswhichcannotbepostponetill
thenextannualgeneralmeeting

40. Astock exchangeis anentitythat provides "trading" facilities
forstock brokersandtradersto tradestocks,bonds, and
othersecurities.
Stock exchanges also provide facilities for issue and
redemption of securities and other financial instruments, and
capital events including the payment of income anddividends.
Securities traded on a stock exchange include sharesissued by
companies,unit trusts,derivatives, pooled investment products
andbonds.

41. 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
Roles of Stock Exchange:

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

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

44. Partnership JointStockCompany
1.Meaning:
Here2ormorepeoplecometogetherfor
doingsomebusinessandmakingprofit
Itisvoluntaryassociation,artificialperson
createdbylawhavingacommonsealand
perpetualsuccession
2.Formation:
Relativelyeasy,lesslegalformalities
involved
Formationdifficult,toomanylegal
formalitiesinvolved.
3.Capital:
Itcanraiselimitedcapitalduetolimitation
onthenumberofmembersandtheir
capacity
Itcanraiselargecapitalduetolarge
members
4.Liability:
Liabilityofpartnersisunlimitedjointand
several
Membersliabilitylimitedtothefacevalue
ofshares
5.OwnershipandManagement:
Thereisnodifferenceinownershipand
management
Thereisnodifferenceinownershipand
management

45. 6.Flexibility:
Moreflexible,comparedtoJointStock
Companies
Lessflexiblecomparedtopartnershipfirm
7.ContinuityandStability:
Lackscontinuityandstability,businessmay
cometoanendwithdeath,insolvencyand
insanityofpartners
Jointstockcompanyiscontinuousand
stable,businessdoesnotcometoanend
withdeathinsolvencyorinsanityof
partners
8.BusinessSecrecy:
Canbemaintainedtoacertainextent Nobusinesssecrecy
9.GovernmentRegulation:
Minimumgovernmentregulation Strictandexcessivegovernmentregulation
10. Taxation:
Lesscomparedtojointstockcompanies Subjecttoheavytaxation

46. 11.Decisionmaking:
Quickdecisionmaking Delayindecisionmaking
12.Economiesofscale:
LesseconomiesofscaleascomparedtoJointStock
Companies
Enjoyseconomiesofscaleasitundertakes
businessonalargescale
13.BargainingPower:
Generallyweakbargainingpower
Strongbargainingpower
14.Contractwithcustomers&employees:
Closecontactwithcustomersandemployees Nocontactswithcustomersandemployees
15.Legalstatus:
Nolegalstatus Possessesandalegalstatus
16.Act:
GovernedbyPartnershipAct,1932 GovernedbyCompaniesAct,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)PublicConfidence
(xi)LongLife

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)LabourDisputes
(vi)LackofResponsibility
(vii)LackofSecrecy
(viii)DoubleTaxes
(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