Introduction of Company Long Answer Type Questions

Question 1.
Explain briefly the stages involved in information of a new company?
Answer:

Promotion
Incorporation
Capital subscription
Commencement of Business

(a) Promotion:
It refers to the discovery of business opportunities and the subsequent organization of funds, property and managual ability into business concern for the purpose of making profit therefrom.

Promotion a company involves:

Discovery to a new business opportunity.
Detailed investigation to consecution the probability of the idea.
Persuading number of persons to form a company.
Estimating the requirement of capital and planning the procurement of funds.
Acquisition of necessary assets
Recruitment of staff.

(b) Incorporation of the company:
A company is said to be incorporated or registered when it gets the certificate qf incorporation from the registrars of companies. Companies registered under company act 1956 may be public company or private company following are the some of identical steps and formalities required for incorporation a company.

Getting the approval of the registrars of companies for the proposed name of the company.
Promoters should obtain a letter of indct which has to be commented later into an industrial license.
Attending the documents duly signed by the auditors soliaiton bankers, under writers, brokers etc.
Enclosing memorandum of association and articles of association.
Filing on application with various documents for the registration of the company.
Payment of stamp duty, filing fees, and registration fees.
Obtaining the certificate of incorporation.

(c) Capital subscription stage:
Capital subscription is the third stage in the formation of a public limited company. Promoters of a company fulfills following steps in this stage

Director are conducting meeting to appoint a secretary of the company.
Bankers auditors solicitor, brokers are appointed to mention their name in the prospectus of the company
Pre-incorporation contracts are rectified by the promotrs to give legal touch to all contracts.
Resolution is passed by the directors of the company to list there share in recognized stock exchange market.
Promoters enters into agreement with underwrites to issue shares to public easily
If company’s offer to the public for subscription shares for more than one crore had to obtain the permission of the controller of capital issues before offering the shares to the public.

(d) Business commencement certificate (BCC):
It is the last step of formation of a company. For obtaining BCC the following steps have to be taken by the company.
(i) An application must be made by the company to the registrars of companies requesting him to grant BCC.

(ii) Following documents and statements must be filed by the company.

Minimum subscription
Qualification of shares
Listing of securities
A document of statutory declaration by stating that all the requirents in respect of commencement of business have been complied with (It is also called as declaration of compalinee)

(iii) Payment of required registration fees.

(iv) Obtainment of Business Commencement Certificate.

Question 2.
What are the special privileges and exceptions enjoyed by the private company under the Companies Act, 2013.
Answer:
Privileges and Exemptions of a Private Company – The” Privileges and exemptions available to a private company are in fact nothing but its advantages over a public company. They are as follows –

Only two members are sufficient to form a private company.
The provisions of S.39 as to minimum subscription do not apply to a private company. It can therefore, commence; allotment of shares irrespective of the number of shares subscribed.
Since a private company is restrained from inviting capital from the public, it is not required to file a prospectus or statement in lieu of prospectus to the public.
It need not offer preference shares to the existing shareholders.
It may commence business immediately after incorporation.
A private company is not required to call a statutory meeting or file a statutory report.
Ills free to issue any kind of shares and allow disproportionate voting rights to its share holders.
S. 149(A) provides that a private company may have only two minimum number of directors.
A private company may appoint one two or more directors by a single resolution and the directors need not file their consent to act or take up qualification shares prior to their appointment.
A special notice of 14 days as required by Section 161 of the Act for appointment of new directors is not necessary in case of a private company provided it is not a subsidiary of a public company.
The director can freely vote on matters relating to contracts in which, they have an interest.
Even one or two members may demand a poll in case of a private company.
The copies of profit and loss account filed by a private company wills the registrar are not open to inspection by non-members.
The directors, of a private company need not retire by rotation and the restrictions on appointment or advertisements of directors do not apply to a private company.

Question 3.
State the differences between private and public company under the companies act 2013.
Answer:
The common differences between a private and public limited company are as follows:

	Public limited company	Private limited company
Features	7	2
(1) Minimum members	3	2
(2) Minimum directors	Unlimited	200
(3) Maximum members	500000	100000
(4) Minimum capital	Yes	No
(5) Invitation to public	Yes	No
(6) Issue of prospectus	5 Members	2 Members
(7) Quorum at AGM	Yes	No
(8) Certificate for commencement of Business (Mandatory)	Limited	Private Limited
(9) Term used at the end of name	No restriction	Can not exceed
(10) Managerial remuneration more than 11 % of Net Profits	Yes	No
(11) Statutory meeting (Mandatory)	Allowed	Not
(12) Public subscription	Free	Restricted
(13) Transfer of shares	Public limited company	Private limited company

Question 4.
State the advantages and disadvantages of private and public company’.
Answer:
A private limited company is a business entity that is held by private owners. This type of entity limits the owner’s liability to their ownership stake, and restricts shareholders from publicly trading shares

Advantages of a Private Limited Company:
(a) Members: We can start a private limited company with a minimum of only 2 members (and maximum of 200), as per the provisions of the Companies Act 2013.

(b) Limited liability: The liability of each shareholder or member is limited. This means that if the company runs into a loss, the company shareholders are liable to sell their company shares to clear the debt or liability. The individual or personal assets of shareholders or members are not at risk.

(c) Perpetual succession: As per company law, perpetual succession means that the company continues its existence even any owner or member dies, goes bankruptcy, exits from the business and transfers his shares to another person.

(d) Prospectus: Prospectus is a detailed statement that must be issued by a company that goes public. However, private limited companies do not need to issue a prospectus because the public is not invited to subscribe for the shares of the company.

(e) Number of directors: A private limited company needs a minimum of only 2 directors. At least one director on the board of directors must have stayed in India for a total period of not less than 182 days in the previous calendar year. The directors and the shareholders can be the same people.

(f) Capital: Minimum share capital required is only Rs. 1 lakh.

Disadvantages of a Private Limited Company:
→ The shares in a private limited company cannot be sold or transferred to anyone unless other shareholders agree on the same.

→ There is no option to invite public to subscribe to the shares.

→ It is mandatory that you should mention Pvt. Ltd. at the end of a company name.

→ A public company is a company that has permission to issue registered securities to the general public through an initial public offering (IPO) and it is traded on at least one stock exchange market. A public company is not authorised to begin its business operations just upon the grant of the certificate of incorporation. In order to be eligible to run as a public company, it should obtain another document called a trading certificate.

Question 5.
State the advantages and disadvantages of public limited company.
Answer:
Advantages of a Public Limited Company:
→ Members: In order for a company to be public, it should have a minimum of 7 members (maximum unlimited).

→ limited liability: The liability of a public company is limited. No shareholder is individually liable for the payment. The public limited company is a separate legal entity, and each shareholder is a part of it.

→ Board of Directors: A public company is headed by a board of directors. It should have a minimum of 3 and can have a maximum of 15 board of directors. They are elected from among the shareholders by the shareholders of the company in annual general meetings. The elected directors act as representatives of the shareholders in managing the company and taking decisions. Having a bigger board of directors therefore benefits all shareholders in terms of transparency as well as fostering a democratic management process.

→ Transparency: Private limited companies are strictly regulated and are required by law to publish their complete financial statements annually to ensure the true financial position of the company is made clear to their owners (shareholders) and potential investors. This also helps to determine the market value of its shares.

→ Capital: A public company can raise capital from the public by issuing shares through stock markets. Public companies can also raise capital by issuing bonds and debentures that are unsecured debts issued to a company on the basis of financial performance and integrity of the company.

→ Transferable shares: A public limited company’s shares are purchased and sold on the market. They are freely transferred among the members and the people trading on stock markets.

Disadvantages of going public:
→ Prospectus: For a public company, issuing prospectus is mandatory because the public is invited to subscribe for the shares of the company.

→ Expensive: Going public is an expensive and time consuming process. A public company must put its affairs in order and prepare reports and disclosures that match with SEBI regulations concerning initial public offerings (IPO). The owner has to hire specialists like accountants and underwriters to take the company through the process.

→ Equity Dilution: Any company going public is selling a part of the company ’s ownership to strangers. Each bit of ownership that the owner sells comes out of their current equity position. It is not always possible to raise the amount of money that you may need to operate a public corporation from shares, so company owners should hold at least 51 percent of the ownership in their control.

→ Loss of Management Control: Once a-private company goes public, managing the business becomes more complicated. The owner of the company can no longer make decisions independently. Even as a majority shareholder, they are accountable to minority shareholders about how the company is managed. Also, company owners will no longer have total control over the composition of the board of directors since SEBI regulations place restrictions on board composition to ensure the independence of the board from insider impact.

→ Increased Regulatory Oversight; Going public brings a private company under the supervision of the SEBI and other regulatory authorities that regulate public companies, as well as the stock exchange that has agreed to list the company’s stock. This increase in regulatory oversight significantly influences management of the business.

→ Enhanced Reporting Requirements: A private company can keep its internal business information private. A public company, however, must make extensive quarterly and annual reports about business operations, financial position, compensation of directors and officers and other internal matters. It loses most privacy rights as a consequence of allowing the public to invest in its stock.

→ Increased Liability: Taking a private company public increases the potential liability of the company and its officers and directors for mismanagement. By law, a public company has a responsibility to its shareholders to maximize shareholder profits and disclose information about business’operations. The company and its management can be sued for self-dealing, making material misrepresentations to shareholders or hiding information f that federal securities laws require to be disclosed.

Question 6.
Explain the features of companies act 2013.
Answer:
1) Corporate Social Responsibility: The Companies Act 2013 stipulates certain class of Companies to spend a certain amount of money every year on activities/initiatives reflecting Corporate Social Responsibility.

2) National Company Law Tribunal: The Companies Act 2013 introduced National Company Law Tribunal and the National Company Law Appellate Tribunal to replace the Company Law Board and Board for Industrial and Financial Reconstruction. They would Relieve the Courts of their burden while simultaneously providing specialized justice.

3) Fast Track Mergers: The Companies Act 2013 proposes a fast track and.simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary, and small companies after obtaining approval of the Indian government.

4) Cross Border Mergers: The Companies Act 2013 permits cross border mergers, both ways; a foreign company merging with an India Company and vice versa but with prior permission of RBI.

5) Prohibition on forward dealings and insider trading: The Companies Act 2013 prohibits directors and key managerial personnel from purchasing call and put options of shares of the company, if such person is reasonably expected to have access to price-sensitive information.

6) Increase in number of Shareholders: The Companies Act 2013 increased the number of maximum shareholders in a private company from 50 to 200.

7) Limit on Maximum Partners: The maximum number of persons/partners in any association/partnership may be upto such number as may be prescribed but not exceeding one hundred. This restriction will not apply to an association or partnership, constituted by professionals like lawyer, chartered accountants, company secretaries, etc. who are- governed by their special laws. Under the Companies Act 1956, there was a limit of maximum 20 persons/partners and there was no exemption granted to the professionals.

8) One Person Company: The Companies Act 2013 provides new form of private company, i. e., one person company. It may have only one director and one shareholder. The Companies Act 1956 requires minimum two shareholders and two directors in case of a private company.

9) Entrenchment in Articles of Association: The Companies Act 2013 provides for entrenchment (apply extra legal safeguards) of articles of association have been introduced.

10) Electronic Mode: The Companies Act 2013 proposed E-Governance for various company processes like maintenance and inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company’s website, etc.

11) Indian Resident as Director: Every company shall have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year.

12) Independent Directors: The Companies Act 2013 provides that all listed companies should have at least one-third of the Board as independent directors. Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors. No independent director shall hold office for more than two consecutive terms of five years.

13) Serving Notice of Board Meeting: The Companies Act 2013 requires at least seven days’ notice to call a. board meeting; The notice may be sent by electronic means to every director at his address registered with the company.

14) Duties of Director defined: Under the Companies Act 1956, a director had fiduciary (legal or ethical relationship of trust)duties towards a company. However, the Companies Act 2013 has defined the duties of a director.

15) Liability on Directors and Officers: The Companies Act 2013 does not restrict an Indian company from indemnifying (compensate for harm or loss) its directors and officers like the Companies Act 1956.

16) Rotation of Auditors: The Companies Act 2013 provides for rotation of auditors and audit firms in case of publicly traded companies.

17) Prohibits Auditors from performing Non-Audit Services: The Companies Act 2013 prohibits Auditors from performing non-audit services to the company where they are auditor to ensure independence artd accountability of auditor.

18) Rehabilitation and Liquidation Process: The entire rehabilitation and liquidation process of the companies in financial crisis has been made time bound under Companies Act 2013.

Question 7.
Define company. Explain the characteristics of company under the companies act 2013.
Answer:
According to the Companies Act, 2013, ‘Company’ means an organisation incorporated under Company law 2013 or any other previous company law. Company is an artificial person formed by single or group of people to done their work efficiently and effectively. Companies includes sole proprietorship, partnership, limited liability, corporation, and public limited company.

According to Lord Justice Lindley, “ A Company is an association of many persons who contribute money or money?s worth to a common stock and employed in some trade or business and who share the profit and loss arising therefrom
1) An incorporate institution or body: A company is an institution or body incorporated under companies act 2013 or any previous company law. A company is also known as body corporate because it is incorporated under provisions of company law.

2) Incorporated by persons or person: A company is an institution incorporated by, single person or group of persons One person company is incorporated by a person and other companies are incorporated by two or more persons.

3) Number of members: In private company there are minimum no of persons are 2 and maximum no of persons are 200, and in public company minimum number of persons are 7 and maximum members are unlimited.

4) Artificial Person: A company is an artificial person created under law because it has no physical body. It is clothed with legal personality.

5) Limited Liability: The principle of limited liability is a feature as well as a privilege of the corporate form of enterprise. In other words, the liability of the members is limited. It means that the shareholders enjoy immunity from liability beyond a certain limit. A Shareholder cannot be called upon to pay anything more than then paid value.

6) Perpetual Succession: As a juristic person, a company enjoys perpetual succession. In other words, a company never dies, nor its life depends on the life of its members. Even if all the members die, it shall not affect the privileges, immunities, estates and possessions of the company.

7) Common Seal: The common seal is considered as the Official Signature of the company. Its common seal must authenticate all the acts. When common seal is affixed on a document, it is considered as the authoritative document of the company,

8) Capacity to Sue and be Sued: A company being a legal person, can sue other persons in its corporate name. Similarly, others can also sue the company in their own name.

Question 8.
Discuss the various kinds of companies recognized under the Companies Act, 2013.
Answer:
It must be noted that the incorporated companies may be formed in three different ways, namely, (i) Companies incorporated by Royal Charter; (ii) Companies incorporated under the State Legislatures and (iii) Companies incorporated under the Companies Act. These are ‘respectively called the Chartered, Statutory and Registered Companies. The Chartered Companies were formed under the royal charter issued by the British Crown during British Rule in India and have lost their significance in the present time.

The Statutory Companies, oil the other hand, are formed by an Act of Legislature to carry on a National business while the registered companies arc those business undertakings which are incorporated under the Companies Act, 1956.. However, there may be certain registered companies which are created for non-commercial purposes such as propagation of religion education, charity, etc. Kinds of Companies – The Companies Act, 2013. provides, for three basic types of companies which may be registered under the Act. They Are:

One Person Company (OPC)
Private Company; and
Public Company.

These Companies may be:

Company limited by shares
Company limited by guarantee
Unlimited Company.

1) Companies Limited by Shares – The main attribute of limited companies which attracts the investors is limited liability of share-holders. In other words, liability of a member, in the event of company’s winding up, in respect of the shares held by him, is limited to the extent of the unpaid value of such shares. Thus, the liability does not fluctuate but remains limited to the unpaid amount of the share-holder, whether original or the transferee.

2) Companies Limited by Guarantee – A company limited by guarantee may also be called a Guarantee Company. It is a company wherein the liability of its members extends to the amount undertaken to be contributed by each of them towards the assets of the company in the event of it’s being wound up as stated in the Memorandum of Association of the company. The liability would arise only in the event of the company being wound up and not otherwise.

3) Private and public Companies – The companies under the first two categories, namely, companies limited by shares and companies limited by guarantee, may be either Private or Public companies. S.2(68) of die Companies Act, 2013 define a ‘private company’ means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles.

restricts the right to transfer its shares
except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company 4 jointly, they shall, for the purposes of this clause, be treated as a single member:

4) Public Companies – According to S. 2(71) of the Companies Act, a ‘public company’ means a company which is not a private company, “public company” means a company which.

is not a private company.
has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed:

5) Unlimited Companies – According to Sec. 2(92) “unlimited company” means a company not having any limit on the liability of its members; a company may be incorporated with the unlimited liability. A company having no limit on the liability of its members is termed an unlimited company. An unlimited company must have articles of association stating the number of members and the share capital, if any, with which it is proposed to be registered .

6) Holding and Subsidiary Companies – Holding and subsidiary companies are relative terms that is, a company is a holding company of another if the other is its subsidiary. According to Sec.2(46) “Holding Company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies;

7) Government Companies – According to S.(45) “Government company” means any company in which not less than fifty one per cent, of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.

8) Foreign Companies – According to Sec. 2(42) a foreign company is a company which is incorporated in any country outside India under the law of that country and has a place of business in India. Foreign companies are of two kinds – (i) Companies incorporated outside-India which established a place of business in India after 1.4.1956, and (ii) Companies incorporated outside India which, established a place of business in India before that date and continue to have an established place of business in India.

9) Finance Companies (Financial Institutions) – A ‘Finance Company’ means a non-banking company, which is a financial institution within the meaning of S.45( 1) (c) of the Reserve Bank of India Act, 1934

10) FERA Companies -The companies operating in India under the Foreign Exchange Regulation Act, 1973 are technically called the FERA Companies. Broadly speaking, they fall under the following categories –

Indian companies having no foreign interests or having less than 40 per cent interest;
Indian companies having more than 40 per cent non-resident interest. Such companies were earlier known as “foreign eiantrolled companies”; and Foreign incorporated companies which are registered in India merely for business operations. The Central Government may impose certain restrictions on FERA Companies U/S. 26 of the Foreign Exchange Regulation Act, 1973.

11) Companies Regulated by Special Acts- The companies which are regulated by Special Acts such as the Banking Companies governed by the Banking Companies Act, 1949;the Insurance Companies governed by the Insurance Act, 1938; Electricity (Supply) Acts 1948; Food Corporation Act, 1964 etc. shall have to be incorporated and registered under the Companies Act and the provisions of the Companies Act, 1956 shall, therefore, also apply to them like any other company.

Question 9.
Explain the circumstances under which corporate veil is lifted.
Answer:
(1) Statutory Provisions:
The Companies Act, 2013, integrated with various provisions, points out the person liable for any such improper/illegal activity as “officer who is in default” under Section 2(60) of the Act, and also includes people holding the positions of directors and key-managerial personnel’s. A few instances of lifting of the corporate veil cases are listed below:

(A) Misstatement in Prospectus: Under Section 26 (9), Section 34 and Section 35 of the Companies Act, it is a punishable offence to furnish untrue or false statements in prospectus of a company offering securities for sale. Prospectus issued under Section 26 contains key notes of the company containing details of shares and debentures, names of directors, main objects and present business of the company. If any person attempts to furnish false or untrue statements in . prospectus, he is subject to penalty or imprisonment or both, as prescribed under the aforesaid sections.

(B) Failure to return application money: Under Section 39(3) of the Companies Act,gives provision against allotment of securities. If the minimum stated amount has not yet been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, then the officers in default are fined with an amount of one thousand rupees for each day till the time the default continues or one lakh rupees, whichever is less.

(C) Misdescription of Company’s name: The name of the company is very important. Attention should be paid to every detail in the spelling and pronunciation of the name of company. Usage of approved name entitles the company to enter into contracts and make them legally binding. The name of the company requires prior approval as under Section 4 and printed under Section 12 of the Companies Act. Thus, if any representative of the company collect bills or sign on behalf of the company, and enter in incorrect particulars of the company, then he is personally liable.

(D) For investigation of ownership of company: Under Section 216 of the Act, the Central Government has authority to appoint inspectors to investigate and report matters relating to the company, and its membership for the purpose of determining the true persons, financially interested in the success or failure of the company; control or to materially influence the policies of the company.

(E) Fraudulent conduct: Under Section 339 of the Act, in case of winding up of the company, it is found that company’s name was being used for carrying out a fraudulent activity, the Court is empowered to hold any such person be liable for such unlawful activities, be it director, manager, or any other officer of the company.

(F) Inducing persons to invest money in company: Under Section 36 of the Companies Act, any person making false, deceptive, misleading or untrue statements or promises to any other person or concealing relevant data from other person with a view to induce him to enter into either of following:
→ An agreement of acquiring, disposing, subscribing or underwriting securities.

→ An agreement to secure profits to any of the parties from the yield of securities or by reference to fluctuations in the value of securities.

→ Agreement to obtain credit facilities from any bank or financial institution. In such circumstances, the corporate personality can be ignored with a view to identify the real culprit making him personally liable under Section 447 of the Act accordingly.

(G) Furnishing false statements: Under Section 448 of the Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required, any person makes false or untrue statements, or conceals any relevant or material fact, then he is liable under Section 447 of the Act. .

(H) Repeated defaults: Under Section 449 of the Act, if a company or an officer of a company commits an offence punishable either with fine or with imprisonment and this offence is being committed again within period of 3 years, such company and officer are to pay twice the penalty of that offence in addition to any imprisonment provided for that offence.

(2) Judicial Pronouncements:
Apart from the mandatory statutory provisions provided by the Companies Act, 2013 with regards to offences behind lifting of Corporate veil, the Legislature has also played an important role to make sure guilty person is pointed to lift corporate veil. Following are few such scenarios where Court has without any doubt lifted the corporate veil:
(A) Tax Evasion:
It’s the duty of every earning person to pay taxes. Company is no different than a person in eyes of law. If anyone attempts to unlawfully avoid this duty, he is committing an offence.

(B) Prevention of fraud/ improper conduct:
It is obvious that no company can commit fraud on it’s own. Human agency involved commits such acts. Thus, one may make efforts to prevent upcoming frauds, but such efforts are in vain, when human agency here has ulterior motive.

(C) Determination of enemy character:
The purpose of forming a company is prfit driven. A company will not attempt to do good towards society consciously. However, it may opt to cause damage instead.

(D) Liability for ultra-vires acts:
Every company is bound to perform, in compliance of it’s memorandum of association, articles of association, and the Companies Act, 2013. Any action done outside purview of either is said to be “ultra-vires” or improper or beyond the legitimate scope. Such operations of the company can be subjected to penalty.

(E) Public Interest/Public Policy:
Where the conduct of the company is in conflict with public interest or public policies, Courts are empowered to lift the veil and personally hold such persons liable who are guilty of the act. To protect public policy is a just ground for lifting the corporate personality. One such scenario is Jyoti Limited vs. Kanwaljit Kaur Bhasin & Anr.,[13] where it was held that corporate veil maybe ignored if representatives of the company commit contempt of the Court so punishment can be inflicted upon.

(F) Agency companies:
Where it is expedient to identify the principal and agent concerning an improper action performed by the agent, the corporate veil maybe neglected, supply and sewage treatment systems.

(G) Negligent activities:
Every company law distinguishes between holding and subsidiary companies. Holding companies under Indian company law[16]are the companies which have right in ‘ composition of Board of Directors, or which have more than 50% of the total share capital of the subsidiary company.

Question 10.
Explain the advantages and disadvantages of joint stock company.
Answer:
Advantages:
(1) Huge Financial Resources: A company can collect large sum of money from large number of shareholders. There is no limit on the number of shareholders in a public company. Since its capital is divided into shares of small value even a person of small means can contribute to its capital by simply purchasing its shares. It facilities the mobilization of savings of millions for the productive purposes. In addition, a company can borrow from banks to a large extent and also issue debentures to public.

(2) Limited Liability: The liability of shareholders in a company is limited to the face value of the shares they have purchased. The limited liability encourages many people to invest in shares of joint stock companies. If the funds of a company are insufficient to satisfy the claims of the creditors, no members can be called to pay anything more than the value of shares held by them.

(3) Perpetual Existence: Due to its separate legal existence, it has perpetual existence. The life of company is not dependent die or become insolvent. The members of a company may go on a company. The stability of business is of great importance to the society as well as to the nation.

(4) Transferability of Shares: The shares if a public company are freely transferable. This transferability of shares brings about liquidity of investment. It encourages many people to invest. It also helps a company in tapping more resources.

(5) Diffusion of Risk: In sole proprietorship and in partnership business, the risk is shared by few persons. But in company, the number of shareholders is large, so many persons share risk. Therefore, the burden of risk upon any individual is not huge. This attracts many investors. It enables companies to take up new ventures.

(6) Efficient Management: In company ownership is separate from management. A company has enough resources to utilize the services of experts and managers who may be highly specialized in different fields of management. It can attract talented persons by offering them higher salaries and better career opportunities. The efficient management will help the company to take balanced decisions and can direct the affairs of the company in the best possible manner. It also helps to expand and diversify the activities of the company.

(7) Economies of Large Scale Production: Large scale production of modern days is the result of company form of organization. This results in economics in production, purchase, marketing and management. These economies will help company to provide quality goods at lower cost to the consumers.

(8) Democratic Management: The company is managed by the elected representatives of shareholders called the ‘directors’. Directors are responsible and accountable to the general body of shareholders. Decisions are taken by a majority of votes completely based upon democratic principles. This prevents in mismanagement of a company.

(9) Public Confidence: A company enjoys a greater public confidence and reputation in the market due to legal control, publicity of accounts and perpetual existence. Audit of Joint Stock Company is compulsory. A company’s financial accounts and statements are published , circulated and are open to public inspection. Therefore public have enough faith in it. So, it can get loan from different financial institutions.

(10) Social Importance: The company provides opportunity to mobilize scattered savings of the community. It also creates employment opportunities. Due to large-scale production consumers get cheaper goods. The society is supplied with enough quantity of goods. Government gets income in the form of taxes.

Disadvantages:
(1) Difficulty in Formation: A company is not easy to form and establish. A number of persons should be ready to associate for getting a company incorporated. It requires a lot of legal formalities to be performed. The shares will have to be sold during the prescribed time. It is both expensive and risky.

(2) Lack of Secrecy: A company has to observe many legal formalities. Most of the business activities are decided through meetings. Profit and Loss Accounts and Balance Sheet are required to be published. So trade secrets cannot be maintained.

(3) Delay in Decisions: In company decisions making process is time consuming. All important decisions are made by either Board of Directors of by General Annual Meetings. So many opportunities may be lost due to delay in decision making.

(4) Separation of Ownership and Management: A company is owned by shareholders but managed by directors. The shareholders play an insignificant role in the working of the company. Though directors are owners of some qualification shares only, yet the result of their activities are to be borne by all shareholders. The profit of the company belongs to shareholders and the Board of Directors is paid only on a commission. There is no direct relationship between efforts and rewards. So the management does not take personal interest in the workings of company. Hence, they may work against the interest of vast majority of shareholders.

(5) Speculation in shares: The Joint Stock Companies facilitate speculation in the shares at stock exchanges. It has been found that even the directors and the managers of the company indulge in manipulating the value of shares to their advantage. When they want to purchase the shares they lower the rate of dividend and when they want to dispose of the shares they declare dividends at a higher rate.

(6) Oligarchic Management: The shareholders who are the real owners do not have much voice in the management. A handful of shareholders, which also manage the affairs of the company, are able to have control over it. Theoretically the company is democratic, but in practice it is mostly a case of oligarchy (Rule by few). A few persons hold power and control and try to exploit the majority. Thus, it does not promote the interest of the shareholders in general.

(7) Excessive Regulation: A company has to observe excessive regulations imposed by the law of the country. The excessive regulations are made with a view to protect the interest of the shareholders and the public but in practice they put obstacles in their normal and effective working. A lot of precious time, efforts, and financial resources are wasted in complying with statutory requirements.

(8) Conflict of Interest: In a company there are many parties whose interest may clash and the result may be conflict of interests. The management, the shareholders, the employees, the creditors and the government may have their own individual interests. Thus, a permanent type of conflict of interests may continue to exist in the companies. These conflicts generally lead to inefficiency in the management and reduce employee morale.

(9) Neglect of Minority: All major issues in company are decided by the shareholders having majority of them. Majority group always dominate over the minority group whose interest are never represented in the management. The company act provides measures against oppression of minority, but the measures are not very effective.