Characteristics of Joint Stock Company

You are now familiar with the concept of company as a form of business organization. Let us
now study its characteristics.
i. Legal formation
No single individual or a group of individuals can start a business and call it a joint stock
company. A joint stock company comes into existence only when it has been registered
after completion of all formalities required by the Indian Companies Act, 1956.
ii. Artificial person
Just like an individual, who takes birth, grows, enters into relationships and dies, a joint
stock company takes birth, grows, enters into relationships and dies. However, it is called
an artificial person as its birth, existence and death are regulated by law and it does not
possess physical attributes like that of a normal person.
iii. Separate legal entity
Being an artificial person, a joint stock company has its own separate existence independent
of its members. It means that a joint stock company can own property, enter into contracts
and conduct any lawful business in its own name. It can sue and can be sued by others in the
court of law. The shareholders are not the owners of the property owned by the company.
Also, the shareholders cannot be held responsible for the acts of the company
iv. Common seal
A joint stock company has a seal, which is used while dealing with others or entering into
contracts with outsiders. It is called a common seal as it can be used by any officer at any
level of the organization working on behalf of the company. Any document, on which the
company's seal is put and is duly signed by any official of the company, become binding on
the company. For example, a purchase manager may enter into a contract for buying raw
materials from a supplier. Once the contract paper is sealed and signed by the purchase
manager, it becomes valid. The purchase manager may leave the company thereafter or
may be removed from the job or may have taken a wrong decision, yet for all purposes the
contract is valid till a new contract is made or the existing contract expires.
v. Perpetual existence
A joint stock company continues to exist as long as it fulfils the requirements of law. It is not
affected by the death, lunacy, insolvency or retirement of any of its members. For example,
in case of a private limited company having four members, if all of them die in an accident the
company will not be closed. It will continue to exist. The shares of the company will be
transferred to the legal heirs of the deceased members.
vi. Limited liability
In a joint stock company, the liability of a member is limited to the extent of the value of
shares held by him. While repaying debts, for example, if a person owns 1000 shares of Rs.
10 each, then he is liable only upto Rs 10,000 towards payment of debts. That is, even if
there is liquidation of the company, the personal property of the shareholder can not be
attached and he will lose only his shares worth Rs. 10,000.
vii. Democratic management
Joint stock companies have democratic management and control. That is, even though the
shareholders are owners of the company, all of them cannot participate in the management
of the company. Normally, the shareholders elect representatives from among themselves
known as ‘Directors’ to manage the affairs of the company.