Joint Stock Company - BZU PAGES: Find Presentations, Reports, Student's Assignments and Daily Discussion; Bahauddin Zakariya University Multan

**usmanstar** · #1 13-06-2011, 04:27 PM

Joint Stock Company

In the modern times the business and industry has been developed on a large scale the capital required for such industry and trade is huge which cannot be accumulated either in a sole proprietorship or a partnership organization. As a result of this change, a new form of organization has become quite popular in modern times which are known as Joint Stock Company. It is normally defined as;

“An association of many person who contribute money or money’s worth to common stock or employ it in some trade and business, and who share profit or loss arising from there.”

It means the joint stock company is a voluntary association of individual who contribute their money or profit to a common stock for carrying on a particular business. The money or money’s worth contributed by the member known as ‘share holders’ forms the capital of the company. The capital is divided into numbers of unit called share. Each share carries definite face value and is transferable in the market without any restriction or formalities.

A company as soon as incorporated takes a legal entity distinct from the share holder who composes it. It is managed by a group of persons known as directors. Directors are the representatives of share holders.

Formation of Joint Stock Company

All the joint stock companies whether public or private are governed by the company’s ordinance 1984 and must be formed according to the procedures laid down in that act. For the formulation of Joint Stock Company the following document must be submitted to the registrar, joint stock Company;
1. The list of directors along with their address.

2. the memorandum of association on which at least 7 person, who are promoters should sign in case of public limited company and two in case of private limited company. In addition of this it is also essential for the, to purchase the qualification share.

3. Articles of association duly signed as memorandum of association.

4. The consent of all the directors to act as directors.

5. A formal declaration by the secretary that all the formalities are duly completed.

6. A statement of normal capital.

Along with the above documents, registration fees, which varies with the amount of share capital is paid off to the treasury.

When the registrar of the joint stock companies is satisfied from all the formalities he will enter the name of the company in the register and will issue a certificate of incorporation. Now the company will have its separate existence.

Advantages of a Joint Stock Company

1. Huge Amount of Capital

It is in a position to raise large amounts of capital required for big business. The reasons are the limitations of liability and the ease of transferability of shares. The small value of shares allows a large number of persons to invest. So, due to limited liability and issuance of shares, large capital may be raised by a Joint Stock Company.

2. All People can Invest

In a Joint Stock Company, the shares are of different kinds so they are purchased by persons of different temperaments. The small value of shares allows the poor people also to purchase it. Besides, a company may also raise finance by the issue of debentures and bonds.

3. Limited Liability of Shareholders

The liability of shareholders is limited. It means that the risk is spread over a large number of shareholders and the possibility of hardship on a few is reduced. Secondly, if the business is going to be lost, the shareholders are not liable to loose anything from their private property.

4. Efficient Management

the management of the Joint Stock Company is carried out by Directors who are able, experienced and trustees of shareholders. The management is thus, the hands of a few experts. Secondly, the company can also hire efficient and qualified staff since it can pay their wages.

5. Stability of Business

The success of business also depends upon the life of the business. The Joint Stock Company is more suited in tis respect, for a company is a legal person having a perpetual succession.

Stock/Security Exchange

A stock exchange is an organized market where secondhand listed industrial and financial securities are bought and sold at auction. The securities are bonds and debentures issued bodies or port trusts.

The securities contracts (Regulation) Act of 1956 defines stock exchange as:

"An Association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities."

An organized stock exchange is thus an association of persons that provides facilities where the securities can be traded by its members, who are referred to as owning seats on the exchange in accordance with self-imposed rules and regulations that confirm to public law. The general public is not permitted to handle security purchases and sales on the floors of these exchanges, only members of the exchange.

Role Played by the Stock Exchange in the Economic Development of a Country

A stock exchange has been variously described such as the barometer of adversity and prosperity of a nation and as the mart of the world and as "Fortresses of Finance." In the modern business world of today, stock exchanges are the important ingredients of the capital markets. They are the prime centers through which investment activities are carried by individual and business concerns.

Importance of Stock Exchange

From the View Point of the Community

* It helps in the economic development by providing a body of interested investors.

* It upholds the position of the superior enterprises and assists them in raising funds.

* It encourages capital formation.

* It helps the government to raise funds through the sale of securities for economic development.

* It portrays the prevailing economic situation of a country. All the changing political, economic and industrial conditions of the nation are reflected on the stock exchange.

* Through correct evaluation in terms of their real worth, the stock exchange helps in the orderly flow of distribution of savings as between different types of competitive investments.

From the View Point of a Company

* The maintenance of a free market, with prices established at all times by the forces of supply and demand, make listed securities more useful then unlisted stocks and bonds.

* The Securities can be used as collateral at a bank for a loan or as the security for collateral trust bonds.

* By providing a channel through which million of individuals invest their savings in long term securities, the stock exchange make possible, indirectly, the growth of hundreds of corporations.

* A member of the company of a stock exchange enjoys better reputation and credit.

* It provides one great view of business, the capital. It serves as a pivot of money market and fortress of capital.

* Due to their purchase and sale on a stock exchange, the market price of the shares of a company is likely to be higher in relation to earnings, dividends and property value. This raises the bargaining power of the company in the event of amalgamation.

From the View Point of Investors

* It is only an organized securities market, which can provide sufficient marketability and price continuity for shares so necessary for the needs of investors.

* Easily saleable security becomes a good material security for loans.

* Strict enforcement of rules safeguards the interest of the investors.

* The daily report enables him to know the exact worth of his investment.

* It is only such a market that can provide a reasonable measure of safety and fair dealing in the buying and selling of securities.

Functions Or Services of Stock Exchange

1. Distribution of New Securities

The brokers advise their clients regarding the merits of a new issue and distribute the companies prospectus among their clients, thus playing a vital role in obtaining subscription from their clients.

2. Facility of Transfer of Securities

The title to the shares is transferable. Hence those investors who do not want to block their money in the same stock can sell their shares to those who are interested in buying them through the stock exchange.

3. Mobility of Capital

A stock exchange performs the function of a continuous ready market for immediate conversion of stock into cash and vice versa, thus providing a market for capital without adversely affecting the industry.

4. Function of Evaluating Securities

It performs the evaluating function of shares by publishing the prices at which bargains are made which become price quotations. In the confidence of these quotations, investors are able to take decisions regarding their investments.

5. Function of Economic Barometer

Stock exchange is often called an economic barometer, which indicates the wealth and trends of not only the industries but also of the economy as a whole. Symptoms of any disease in the economy can be easily traced through the stock exchange. The functioning and operations of stock exchange reflect the temperament of the economy.

6. Increase in the Number of Dealings

The stock exchange provides the facility for secondary distribution of new securities after their original sale. Stocks of securities of fared for sale in a stock vary from time to time. It increases the marketability of the securities since they are bought and sold again and again.

7. Forecasting Function

The stock exchange reflects the future business conditions and trends of price. Signals of impending financial and business dooms are indicated by the stock exchange in advance.

8. Imparts A Collateral Value to Securities

The fact that the title of the shares are transferable increases the collateral value of the securities and enables the holder to obtain loan on their basis. The creditor on the other hand, can promptly liquidate these collaterals by selling in time of emergency.

9. Agency of Capital Formation

The liquidity of shares and proper publicity of securities through various means attracts the general public to invest their savings in stock and securities. Greater investment means generation of capital.

10. Clearing House of Business

Companies are required to furnish all the essential financial statements and other reports etc to ensure maximum publicity on corporate operations and working. Thus, stock exchange is an important source of information, which is valuable to the investors, to government bodies and to the company itself.

11. Regulation of Market Prices

Companies are required to furnish all the essential financial statements and other reports etc. to ensure maximum publicity on corporate operations and working. Thus, stock exchange is an important source of information, which is valuable to the investors, to government bodies and to the company itself.

12. Regulation of Market Price

Speculations in the stock exchange promotes equilibrium of demand and supply and prevent large fluctuations in prices. The price movements are made smoother by the activities of speculators.

13. Regulation of Company Management

A company, which wants its securities to be quoted and traded on a stock exchange, has to get itself enrolled according to the laws and rules of the stock exchange. Through these regulations, stock exchange exercise wholesome influence on the management and working of he company in public interest.

Investment Banks

Investment banks perform a major role in the very important function of raising long-term capital for corporations. Such banks are also sometimes called security houses. These specialize in the marketing of new issues of common preferred stocks and bonds of old and new companies. They sell them to the general public or to pension funds, insurance companies or other large investing institutions. These are banks, which provide capital for industry usually for long period purposes of production, in return taking over shares in the borrowing companies. What they actually do is to under-write a corporation's new security issues. In other words, security houses guarantee the sale of a company's securities and deliver a check to it for these new securities. They make their profit by changing a commission which may vary from 3% to 10% or more of the proceeds of the sale.

The investment bank would make an investigation of a company prior to making any commitment regarding the proposed bond issue. The final agreement to under-write is usually not signed until a day or two before the securities are put on the market. The price that the investment bank would be willing to pay would depend on the amount that it anticipates can be realized from the sale of securities.

Financing by Leasing

Leasing houses or companies are the institutions that provide business premises, building, plants, machinery, store and office equipments and other fixed assert accessories on rent to business enterprise. They carry on rental business and their source of earning is rental income. Manufacturers and service business owners obtain their fixed asset requirements from leasing companies on rent without buying them up and getting their capital blocked for a longer period. This source is very attractive to those business enterprises that require a relatively large working capital to meet the growing challenge of increasing competition. The facility provided by leasing companies is an indirect finance for fixed capital requirements. Instead of giving loan or providing capital in csh, they offer necessary fixed assets in kinds on monthly rental basis to manufacturers and service business operators. Leasing the cost of typical lease is, as would be expected, higher than the interest on loans.

International Chamber of Commerce

It is a world trade organization founded at Atlantic City, N. J, in 1920 with headquarters in Paris. Its membership, derived from more than 70 countries, consists of Chambers of Commerce, trade and industrial associations, and individual business firms and corporations. Mr. M. A Rangoonwala has been the Vice President of I.C.C for quite some time.

It acts as a clearing house for the exchange of views in international economic policies and problems and to promote world trade. In 1946, it was granted consulative status by the Economic and Social Council of the United Nations. It gives suggestions to GATT and UNCTAD on matters of restrictions on import, shipment problems, customs tariffs etc.

International Chamber of Commerce solves the problems of international arbitration of exchange. in fact, it solves the disputes arising out of payment by a person in one country of a debt payable in another country by means of a Bill of Exchange purchased in a third country