What are the features and advantages of a joint stock company?
A joint stock company is a business organization where ownership is divided into shares held by shareholders. It is a popular form in large-scale industries, and knowledge of the joint stock company is essential for school exams, competitive tests, and general business understanding. Mastering these concepts supports students in Business Studies, CA Foundation, and board exam preparation.
| Feature | Joint Stock Company | Partnership Firm |
|---|---|---|
| Legal Status | Separate legal entity ("artificial person") | No distinct legal identity from partners |
| Liability | Limited to unpaid amount on shares | Unlimited |
| Number of Members | Minimum 2 (private) / 7 (public) | 2 to 50 |
| Management | Managed by Board of Directors | Managed by partners |
| Existence | Perpetual succession | Ends with retirement/death/insolvency of partners |
What is Joint Stock Company?
A joint stock company is a legal business entity formed by incorporation, where ownership is split into shares held by shareholders. It has its own legal identity and possesses features like limited liability, perpetual succession, and the ability to raise capital by issuing shares.
Key Features of Joint Stock Company
- Separate legal identity (exists independently of members)
- Created by law (Companies Act, 2013 in India)
- Limited liability of shareholders
- Ownership divided into shares
- Managed by Board of Directors
- Existence is not affected by changes in membership
- Can enter contracts in its own name
- Must prepare key documents: Memorandum and Articles of Association
Types of Joint Stock Companies
- Private Company (min. 2 members, max. 200)
- Public Company (min. 7 members, no upper limit)
- Statutory Company (formed by a special Act)
- Chartered Company (by royal charter, rare)
MCQ on Joint Stock Company
Practice these multiple choice questions to reinforce your understanding for school and competitive exams:
- A joint stock company is created by:
- A) Agreement
- B) Law
- C) Partners
- D) Government only
- Shareholders’ liability in a company is:
- A) Unlimited
- B) Joint and Several
- C) Limited to the face value of shares
- D) None
- Minimum number of members in a public company is:
- A) 2
- B) 5
- C) 7
- D) 10
- Board of Directors are responsible for:
- A) Day-to-day operations
- B) Managing all affairs
- C) Preparing audit reports
- D) Filing individual tax returns
- An official signature of a company is called:
- A) Company Seal
- B) Proprietor’s stamp
- C) Share Certificate
- D) Promoter's card
- Dividend is paid to:
- A) Creditors
- B) Employees
- C) Shareholders
- D) Debenture holders
- Documents required to form a company include:
- A) Deed of Partnership
- B) Memorandum and Articles of Association
- C) Letter of Intent
- D) Share Certificate
- The company form of business is best suited for:
- A) Small-scale business
- B) One-person business
- C) Large-scale business
- D) Temporary business
- Deferred shares are usually issued to:
- A) Employees
- B) Promoters
- C) Government
- D) Directors
- Which statement is correct about a joint stock company?
- A) It dissolves on the death of a member
- B) It is not a separate legal entity
- C) It can own property in its own name
- D) Its members have unlimited liability
Key Concepts Explained
| Concept | Description |
|---|---|
| Artificial Person | A company has a legal identity separate from its members |
| Limited Liability | Shareholders are only responsible for unpaid share capital |
| Perpetual Succession | The company continues despite changes in membership |
| Share Capital | Total capital raised by issuing shares to the public |
| Directors | Individuals elected to manage the company |
| Memorandum of Association | Main document outlining company’s objectives and scope |
| Articles of Association | Rules for internal management of the company |
Application and Importance in Exams and Business
Understanding the joint stock company aids students in scoring high for Class 11 and 12 Business Studies, Company Law, and professional courses. It prepares them for practical business problems encountered in large organizations by explaining concepts such as share capital, legal existence, management roles, and more. At Vedantu, we simplify these advanced topics for easy comprehension.
Internal Resources and Further Reading
- Joint Stock Company
- Features of Company
- Types of Companies
- Memorandum of Association
- Company Law 2013
- Difference Between Partnership Firm and Company
- Types of Shares
- Issue of Shares
Download MCQ on Joint Stock Company PDF
To practice offline, students can download a comprehensive MCQ PDF with answers. This helps in last-minute revision and self-assessment. Download MCQ PDF here.
In summary, a joint stock company is an essential concept in Commerce. It features limited liability, separate legal existence, and structured management. Understanding its types, features, and legal requirements helps students succeed in exams and appreciate real-world business challenges. For more detailed resources, visit Vedantu’s dedicated Commerce section.
FAQs on MCQ on Joint Stock Company: Concepts, Features & Practice
1. What is a joint stock company?
A joint stock company is a legal entity formed by registration, where ownership is divided into shares held by shareholders. It enjoys limited liability and perpetual succession, meaning its existence continues even if shareholders change.
2. What are the important features of a joint stock company?
Key features include a separate legal identity, limited liability for shareholders, perpetual succession, the ability to issue shares, and regulated management by a Board of Directors. These features distinguish it from other business structures like partnerships and sole proprietorships.
3. How many members are needed to start a public joint stock company?
As per the Companies Act, a minimum of seven members is required to form a public joint stock company. This differs from private companies which may have fewer members.
4. How is a joint stock company different from a partnership?
Unlike partnerships, joint stock companies are incorporated entities with limited liability and perpetual succession. Ownership is represented by shares, offering easier transferability than partnership interests. The management structure is also more formally defined.
5. What is the liability of shareholders in a joint stock company?
Shareholders in a joint stock company enjoy limited liability. Their liability is restricted to the amount of unpaid share capital on their shares; their personal assets are generally protected from company debts.
6. Why is a joint stock company called an artificial person?
A joint stock company is termed an 'artificial person' because it's a creation of law, existing separately from its owners. It possesses legal rights and obligations similar to an individual, capable of entering contracts and owning property.
7. What documents are essential for forming a joint stock company?
The Memorandum of Association and Articles of Association are essential documents for registering a joint stock company. The Memorandum outlines the company's objectives and powers, while the Articles detail its internal regulations.
8. How are dividends paid in a joint stock company?
Dividends in a joint stock company are paid to shareholders from company profits, after meeting all statutory obligations. The Board of Directors approves dividend payments, and the amount is usually proportionate to the number of shares held.
9. Can a joint stock company be perpetual?
Yes, a joint stock company enjoys perpetual succession. Its existence isn't affected by changes in shareholders; it continues indefinitely unless formally dissolved.
10. What is the role of the Board of Directors in a joint stock company?
The Board of Directors manages the joint stock company's affairs, making strategic decisions and acting as representatives of the shareholders' interests. They oversee the company's operations and ensure compliance with relevant laws and regulations.
11. What is the minimum number of members in a joint stock company?
The minimum number of members required to form a joint stock company varies depending on whether it is a public or private company. Public companies generally require a minimum of seven members, while private companies may have fewer.
12. What is the liability of shareholders in a joint stock company?
Shareholders in a joint stock company typically have limited liability. This means their personal assets are protected from the company's debts; their liability is generally limited to the amount they have invested in the company's shares.
13. What is a joint stock company is an artificial person created by?
A joint stock company is an artificial person created by law through the process of incorporation. It exists separately from its owners and has the legal capacity to own assets, enter contracts, and sue or be sued.
14. For a joint stock company, payment of dividend is…?
In a joint stock company, the payment of dividends is dependent on several factors, including the company's profitability, statutory requirements, and the Board of Directors' approval. Dividends are distributed to shareholders from the company's profits after all necessary expenses and obligations have been met.
