Company - Features, advantages and disadvantages- Legal procedures involved to form a company

             Company or Joint Stock Company is a form of business which can be defined as a voluntary association of persons carrying on business with profit motive and having share holders as the joint owners of the company. It is ideal business model for starting a large scale business. Capital of partners is altogether called share capital of the company. A joint stock company is formed in India according to provisions of Companies Act, 1956. A company have a separate legal entity distinct from it’s share holders and is considered by law as an artificial judicial person. Perpetual succession is another peculiar feature of a joint stock company. A company also have a common seal of it’s own. Most important feature of a joint stock company business is limited liability. It means that liability of a share holder of a company is limited to the number of shares held by him in the company. A company have a board of directors lead by a managing director. The managing director and board of directors is responsible for the overall management of the company.

Main features of a company

1)    Artificial judicial person:

The company is considered as an artificial judicial person created by following the statutes. A company can have it’s own property, can have business dealings of it’s own, can sue and can be sued in a court of law like an individual.

2)    Separate legal entity:

A company have a separate legal entity distinct from it’s share holders. Share holders are only joint owners of a company.

3)    Limited liability:

This can be considered as the most distinguishable feature of a joint stock company from any other form of business. Limited liability of the share holders means that the liability of a share holder of a company is limited to the number of shares held by him in the company. This makes it clear that the share holder doesn’t have personal liability to clear the debts of the company. This is the most important advantage of a joint stock company form of business.

4)    Perpetual succession:

Perpetual succession or perpetual existence is another main feature of a company. It means that the company doesn’t come to closure of the business by the death or insolvency of any share holder or managing director or a director of the company. The company will continue it’s business operations irrespective of death, insanity, insolvency or bankruptcy of a share holder or managing director or director of the company.  

5)    Common seal:

Common seal is the signature of the company which is affixed in any document relating to the company. A company shall have a common seal from the time of it’s incorporation. It is a metallic seal of the company affixed only with the approval of board of directors of the company. Different documents of the company such as business contracts, annual reports, title deeds and other documents of the company are affixed with the common seal of the company.

6)    Freely transferable shares:

Shares of a joint stock company are freely transferable. In case of public company, it can be listed in a stock exchange for public subscription after following the procedures prescribed by Securities and Exchange Board of India(SEBI) in this regard. In private limited company, the free transferability of the shares is restricted by the articles of association.

7)    Membership:

Minimum number of persons required to start a private limited company is two and the maximum persons is 200. To form a public limited company, the minimum required persons is seven and there is no maximum limit for number of persons.

8)    Voluntary association of persons

A joint stock company is a voluntary association of persons with an aim to conduct a business with a profit motive. The joint owners or share holders of the company join together for the benefit of each share holder of the company. The profit made by the company is distributed as dividend to the share holders each year.

Advantages of a company

1)    Large capital resources:

With large capital resources than any other business form, it is ideal for large scale business. Public limited company have more potential than private limited company.

2)    Limited liability:

Liability of the share holder is limited to the number of shares held by him. This is the most advantageous and peculiar feature of a joint stock company.

3)    Perpetual succession and goodwill:

Death of any share holder or managing director or directors does not affect the business of the company. Company’s existence is not dependable on any person. Likewise, the goodwill of a company is not available to any other business form. More loan facilities are available to companies than any other form of business.

4)    Efficient management:

Experts can be employed in managerial positions of a company since finance is not a constraint.

5)    Divided risk:

Risk of loss in a company is divided among the share holders. If any loss arises, the share holder is not personally held liable and the risk is spread over many persons.

Disadvantages of a company

1)    Formation of a company is more time consuming and expensive.

2) Delay in decisions:  Lack of personal responsibility and lack of flexibility in operations may lead to unreasonable delay in making decisions.

3) Excessive statutory obligations: More statutory procedures and obligations make the administration more complex and tedious.

4) Chances of conflicts in interests among different share holder groups sometimes creates problems.

         Even though there are few disadvantages for the company business, it is still the most accepted and used form of business for large scale business ideas worldwide. Big factories which involves in the business of large scale manufacture of different products and different service sector businesses are formed as companies. Any business which requires large scale operations requires huge fund investments and the company business is ideal for such business.