Entrepreneurship Development

ENTREPRENEURSHIP DEVELOPMENT FOR RURAL FAMILIES 4(1+3)

Lesson 7 : Types of Enterprises

Joint stock company

A joint stock company is a voluntary association of persons, who contribute to its capital but their liabilities are limited.

Features

1. The company is to be considered as a “person” in the eye of law.
2. It exists as a separate legal entity.
3. It has a common seal and personnel existence.
4. It’s capital is distributed in very small parts and each part is called ‘share’.
5. Its shares are easily transferable.
6. Liabilities of members are limited.
7. The company is managed by directors, elected by member of a company.
8. It is registered under joint stock company act 1956 and governed by the same.
9. Profit is distributed as dividend among members.
10. Minimum and maximum number of members is restricted by company act.

Types of company: According to membership a company can be divided into two types.

1. Private company: A company is called a private company if it has following features.
1. Minimum membership is two and maximum membership is 50.
2. There are restrictions on transfer of shares.
3. It cannot issue prospect for inviting public to invest in share capital of the company.
4. At the end of the company’s name a word “private ltd” must be written.
5. Liabilities of members are limited.


2. Public company: A company is called public company if it has following characteristics.
1. Minimum memberships are ‘7’ and maximum memberships are unlimited.
2. Shares of the company are easily transferable.
3. It can issue prospect for inviting public to invest in share capital of the company.
4. At the end of the company’s name, a word “ltd” is only written.
5. Liabilities of members are limited.

Advantages of joint stock company

• Huge capital funds can be collected as share capital from public.
• Its membership is open to all.
• Liabilities of members are limited.
• Equity shareholders have voting right as owners.
• It offers many employment opportunities.
• Scale of business operations can be analyzed at international level also.
• It helps the country for rapid industrial and economic development.

Disadvantages:

• Equity share holders are considered owners of joint stock company. But their real voice in management is very limited.
• There may be lack of harmony of interest among members.
• There are long legal formalities for forming a joint stock company.
• The burden of taxes on Joint Stock Company is comparatively heavy.