COMPANY-AN INTRODUCTION

CHAPTER 7

COMPANY-AN INTRODUCTION

MEANING AND DEFINITION OF COMPANY

A company is a legal entity that is created under the laws of a particular country to conduct business activities. It is an organization that is formed by a group of individuals, who come together to achieve a common purpose, usually to make a profit.

A company is a separate legal entity from its owners, which means that it has its own legal rights and obligations. It can enter into contracts, sue or be sued, own property, and conduct business activities in its own name. The owners of a company are called shareholders, and they own shares in the company that represent their ownership stake.

The operations of a company are managed by a board of directors, who are elected by the shareholders. The board of directors is responsible for making strategic decisions, appointing senior executives, and ensuring that the company is run in accordance with its legal obligations and best practices.

There are various types of companies, including public companies, which are listed on a stock exchange and can be owned by anyone who purchases shares, and private companies, which are owned by a small group of individuals and are not publicly traded. Companies can also be classified based on their legal structure, such as a limited liability company (LLC) or a corporation.

In summary, a company is a legal entity that is formed to conduct business activities, and it is owned by shareholders who elect a board of directors to manage its operations.

CHARACTERSTICS OF A JOINT STOCK COMPANY

A joint stock company is a form of business organization that is owned by shareholders who have invested capital in the company. Here are some of the key characteristics of a joint stock company:

1. Separate legal entity: A joint stock company is a separate legal entity from its shareholders. It can enter into contracts, own property, sue or be sued in its own name.

2. Limited liability: The liability of the shareholders in a joint stock company is limited to the amount of capital they have invested in the company. They are not personally liable for the company's debts and obligations.

3. Perpetual existence: A joint stock company has perpetual existence, which means that it can continue to exist even if its shareholders change.

4. Transferability of shares: The shares of a joint stock company are freely transferable, which means that shareholders can sell or transfer their shares to others.

5. Professional management: A joint stock company is managed by a board of directors, who are elected by the shareholders. The board of directors appoints professional managers to run the company's operations.

6. Large capital base: A joint stock company can raise large amounts of capital by issuing shares to the public. This enables the company to undertake large-scale projects and expand its operations.

7. Democratic control: Shareholders in a joint stock company have democratic control over the company. They can vote on important decisions such as the appointment of directors, the approval of the company's financial statements, and the distribution of dividends.

In summary, a joint stock company is a separate legal entity with limited liability and perpetual existence. It has a large capital base and is managed by a board of directors appointed by the shareholders. The shares of a joint stock company are freely transferable, and shareholders have democratic control over the company.

ADVANTAGES OF A JOINT STOCK COMPANY

There are several advantages of a joint stock company, including:

Limited liability: One of the primary advantages of a joint stock company is that the liability of the shareholders is limited to the amount of their investment in the company. This means that if the company faces financial difficulties or legal issues, the shareholders are not personally liable for the company's debts beyond their investment.

Access to more capital: Joint stock companies can raise large amounts of capital by issuing shares to the public. This allows the company to undertake large-scale projects and investments that might not be possible with limited funding from individual investors.

Perpetual existence: Joint stock companies have perpetual existence, which means that they can continue to exist even if their founders or shareholders pass away. This provides stability and continuity to the company's operations, which can be beneficial for long-term planning and growth.

Transferability of ownership: The shares of a joint stock company are freely transferable, which means that shareholders can buy and sell their shares in the company without affecting the company's operations. This allows shareholders to easily enter or exit the company as they see fit, providing greater flexibility and liquidity.

Professional management: Joint stock companies are often managed by a professional board of directors and executive team, which can bring expertise and experience to the company's operations. This can lead to more efficient and effective decision-making, which can ultimately benefit the company's shareholders.

Limited risk for shareholders: The risk for shareholders in a joint stock company is limited to the amount of their investment. This means that even if the company fails, shareholders will not lose more than the amount they have invested. This can be attractive to investors who are risk-averse and want to limit their exposure to potential losses.

DISADVANTAGES OF JOINT STOCK COMPANY

Along with the advantages, there are some disadvantages of joint stock companies as well, which include:

Complex structure: Joint stock companies have a complex structure and are subject to many legal and regulatory requirements, which can be difficult and costly to comply with. This can make it challenging for small businesses to set up as joint stock companies, as they may not have the resources to meet these requirements.

Lack of control: Shareholders in a joint stock company have limited control over the company's operations, as they only have the right to vote on major decisions, such as the appointment of directors and the approval of major transactions. This can lead to a lack of involvement and influence in the company's affairs, which may not be suitable for some investors.

Shareholder conflicts: In a joint stock company, shareholders may have different interests and priorities, which can lead to conflicts and disagreements. This can make it difficult to make decisions and can result in a lack of consensus among shareholders.

Public scrutiny: Joint stock companies that are publicly traded are subject to public scrutiny and must comply with disclosure requirements, which can be time-consuming and expensive. This can also make the company more vulnerable to negative publicity and public criticism.

Dividend expectations: Shareholders in a joint stock company may have high expectations for dividends and returns on their investments, which can put pressure on the company to generate profits and pay out dividends even if it is not in the best interest of the company's long-term growth and stability.

Risk of hostile takeovers: Joint stock companies may be vulnerable to hostile takeovers by other companies or investors, which can lead to significant changes in the company's operations and strategic direction. This can be disruptive and may not align with the interests of the company's existing shareholders.

TYPES OF COMPANIES

There are several types of companies, including:

Sole proprietorship: A business owned and operated by one person, who is responsible for all aspects of the business and has unlimited liability for its debts.

Partnership: A business owned and operated by two or more individuals who share the profits and losses and have unlimited liability for the debts of the business.

Limited Liability Company (LLC): A hybrid business structure that provides the limited liability of a corporation and the tax benefits of a partnership.

Cooperative: A business owned and operated by a group of individuals or businesses who work together to achieve common goals and share in the profits and losses.

Corporation: A legal entity that is separate from its owners and has limited liability for its debts. Corporations can be public or private and can issue stocks or bonds to raise capital.

Joint Stock Company: A company that issues shares of stock to its shareholders and can raise large amounts of capital. Shareholders have limited liability for the debts of the company.

Franchise: A business model where a parent company grants the right to use its brand name, products, and services to another company in exchange for a fee or a percentage of the profits.

Nonprofit: A business entity that operates for a charitable, religious, or educational purpose and does not distribute profits to its owners or shareholders.

Holding Company: A company that owns a controlling interest in other companies, often for the purpose of diversifying investments or managing subsidiaries.

These are just a few examples of the types of companies that exist. The appropriate type of company for a particular business will depend on a variety of factors, including the size of the business, the number of owners, the type of industry, and the goals of the business.

1. Public Companies

Public companies are companies that have issued shares of stock to the public and are traded on a stock exchange. They are also referred to as publicly traded companies or corporations. Public companies must comply with regulations established by government agencies such as the Securities and Exchange Commission (SEC) in the United States.

Here are some characteristics of public companies:

Ownership: Public companies are owned by shareholders who can buy and sell shares in the company on a stock exchange.

Financial reporting: Public companies must report their financial performance regularly to shareholders and the public. They must file annual reports and quarterly reports with the SEC, which include financial statements and other disclosures.

Board of directors: Public companies are governed by a board of directors who are elected by the shareholders. The board is responsible for overseeing the management of the company and making major decisions.

Transparency: Public companies are subject to strict regulations that require them to provide transparency in their operations, financial performance, and decision-making processes.

Access to capital: Public companies have access to a large pool of capital through the sale of shares to the public, which can be used to fund growth, acquisitions, and other investments.

Market valuation: Public companies are valued by the stock market based on their financial performance, industry trends, and other factors. The stock price can fluctuate based on market conditions and investor sentiment.

Legal liability: Public companies are subject to legal liability for their actions, including potential lawsuits from shareholders, customers, and other stakeholders.

Public companies are often larger and more complex than private companies, with a wider range of shareholders and more extensive regulatory requirements.

2. Private Company

A private company, also known as a privately held company, is a company that is owned by a limited number of individuals or organizations and is not publicly traded on a stock exchange. Private companies do not have to comply with the same regulations as public companies and have more flexibility in their operations and decision-making processes.

Here are some characteristics of private companies:

1. Ownership: Private companies are owned by a limited number of individuals or organizations, such as a family, group of investors, or private equity firm.

2. Financial reporting: Private companies do not have to disclose their financial performance to the public, although they may be required to provide financial information to lenders or investors.

3. Management: Private companies are typically managed by their owners or a small group of executives who have more control over the company's operations and decision-making processes.

4. Flexibility: Private companies have more flexibility in their operations and decision-making processes because they are not subject to the same regulations and public scrutiny as public companies.

5. Access to capital: Private companies can raise capital through private investments, loans, or other sources, but may have more limited access to capital compared to public companies.

6. Valuation: The valuation of a private company is often less transparent and can be more difficult to determine compared to public companies.

7. Legal liability: Private companies are still subject to legal liability for their actions, but may be less exposed to litigation and regulatory scrutiny compared to public companies.

Private companies are often smaller than public companies and may have a narrower focus on a particular industry or market segment. Private companies may also have a longer-term outlook and prioritize long-term growth over short-term profits.

Privileges of the private companies

Private companies enjoy several privileges, including:

1. Flexibility in management: Private companies have more flexibility in their management structure and decision-making processes. Owners can make decisions quickly without the need for approval from a board of directors or shareholders.

2. Confidentiality: Private companies are not required to disclose their financial information to the public, which can provide owners with more privacy and confidentiality.

3. Lower regulatory requirements: Private companies are not required to comply with the same regulatory requirements as public companies. This can reduce the cost and time associated with compliance.

4. Lower public scrutiny: Private companies are not subject to the same level of public scrutiny as public companies. This can allow owners to operate with more freedom and avoid negative publicity.

5. Greater control: Private companies are typically owned by a small group of individuals or organizations, which allows owners to have greater control over the company's operations and direction.

6. Lower costs of capital: Private companies can often raise capital at a lower cost than public companies, as they are not subject to the same regulatory requirements and do not have to pay fees associated with issuing and trading shares.

7. Long-term focus: Private companies can focus on long-term growth and strategic planning without the pressure of meeting short-term financial targets or satisfying the demands of public shareholders.

Overall, private companies have more autonomy and flexibility in their operations and decision-making processes compared to public companies, allowing owners to prioritize their long-term goals and strategic vision.

3. One person company (OPC)

A One Person Company (OPC) is a type of company that can be incorporated by a single person. It was introduced in India under the Companies Act, 2013 to provide entrepreneurs with the benefits of limited liability while allowing them to operate as a separate legal entity.

Here are some key features of OPC:

Single owner: An OPC can be incorporated with only one person as the owner, who can also act as the director.

Limited liability: The owner of an OPC has limited liability, which means their personal assets are protected in case of any financial or legal liabilities of the company.

Separate legal entity: An OPC is a separate legal entity from its owner, which means it can enter into contracts, own assets, and sue or be sued in its own name.

Nominee: The owner of an OPC must nominate a person who will become the owner of the company in case of the owner's death or incapacity.

Conversion to private limited company: An OPC can be converted to a private limited company if its turnover exceeds a certain threshold or if the owner desires to bring in more shareholders.

Tax benefits: OPCs are eligible for various tax benefits and exemptions under the Income Tax Act, such as lower tax rates and deductions.

OPCs are suitable for entrepreneurs who want to operate as a separate legal entity and enjoy the benefits of limited liability while having complete control over the company's operations. However, OPCs are limited in terms of their ability to raise capital, as they cannot issue shares to the public or have more than one owner.

Benefits of one person company

Here are some benefits of a One Person Company (OPC):

Limited liability: OPC offers limited liability protection to the owner, which means that the owner's personal assets are not at risk in case of any financial or legal liabilities of the company.

Separate legal entity: OPC is a separate legal entity from its owner, which means it can enter into contracts, own assets, and sue or be sued in its own name. This provides the owner with a professional image and credibility in the market.

Single ownership and management: OPC can be owned and managed by a single person, which provides complete control over the company's operations and decision-making processes.

Easy to set up: The process of setting up an OPC is relatively easy and requires fewer compliance formalities compared to other types of companies.

Lower compliance cost: OPCs have lower compliance costs compared to other types of companies because they are not required to hold annual general meetings or appoint independent directors.

Tax benefits: OPCs are eligible for various tax benefits and exemptions under the Income Tax Act, such as lower tax rates and deductions.

Continuity of existence: OPC has perpetual succession, which means that the company continues to exist even if the owner dies or becomes incapacitated.

Overall, OPCs provide a good balance between the benefits of a sole proprietorship and a private limited company. It provides the owner with the advantages of limited liability and a separate legal entity while retaining the ease of management and control of a sole proprietorship.

4. Government Company

A Government Company is a type of company in which the government holds a majority stake or control over the company's management and operations. It is established under the Companies Act, 2013 and is owned and operated by the government.

Here are some key features of a Government Company:

Ownership: The government holds a majority stake in the company, either directly or through other government-owned entities.

Management: The government appoints the board of directors and senior management of the company.

Control: The government has control over the company's management and operations, which means that it can influence the decision-making process of the company.

Public sector: Government companies are part of the public sector and are subject to government regulations and policies.

Social objectives: Government companies are often established with social objectives in mind, such as promoting economic growth, creating employment opportunities, and providing essential goods and services.

Financial support: Government companies may receive financial support from the government in the form of equity, loans, or grants.

Accountability: Government companies are accountable to the government and are required to comply with various rules and regulations related to financial reporting, governance, and transparency.

Overall, government companies play a significant role in the development of the economy and society by providing essential goods and services, creating employment opportunities, and promoting economic growth. However, they are subject to government regulations and may face challenges in terms of efficiency and profitability due to political influence and bureaucracy.

DIFERENCE BETWEEN PRIVATE COMPANY AND PUBLIC COMPANY

The key differences between a private company and a public company are as follows:

Ownership: A private company is owned by a small group of individuals, while a public company is owned by a large number of shareholders.

Number of shareholders: A private company cannot have more than 200 shareholders, while a public company can have an unlimited number of shareholders.

Listing on stock exchange: A private company cannot be listed on the stock exchange, while a public company can be listed on the stock exchange, allowing the public to buy and sell shares in the company.

Transfer of shares: Shares of a private company cannot be freely transferred, while shares of a public company can be easily traded on the stock exchange.

Disclosure requirements: Private companies have fewer disclosure requirements compared to public companies, which are required to disclose detailed financial and non-financial information to the public.

Capital requirements: Public companies require a larger amount of capital to be raised from the public through an Initial Public Offering (IPO) to finance their operations and expansion, while private companies typically rely on funding from private investors or banks.

Regulations: Public companies are subject to more stringent regulations and governance requirements compared to private companies, which have more flexibility in their operations and decision-making.

Overall, the main difference between a private company and a public company is their ownership structure, number of shareholders, and listing on the stock exchange, which affects their operations, regulations, and governance requirements.

DIFFRENCE BETWEEN PUBLIC COMPANY AND PARTNERSHIP

The key differences between a public company and a partnership are as follows:

1. Ownership: A public company is owned by shareholders, while a partnership is owned by two or more partners.

2. Legal entity: A public company is a separate legal entity from its shareholders, while a partnership is not a separate legal entity and the partners are personally liable for the debts and obligations of the partnership.

3. Liability: The liability of shareholders in a public company is limited to the amount of their investment, while the partners in a partnership have unlimited personal liability for the debts and obligations of the partnership.

4. Management: In a public company, the board of directors is responsible for managing the company, while in a partnership, all partners share the management responsibilities.

5. Transferability of ownership: Shares of a public company can be easily bought and sold on the stock exchange, while ownership in a partnership cannot be transferred without the consent of all partners.

6. Governance: A public company is subject to more stringent regulations and governance requirements compared to a partnership, which has more flexibility in its operations and decision-making.

7. Capital requirements: Public companies require a larger amount of capital to be raised from the public through an Initial Public Offering (IPO) to finance their operations and expansion, while partnerships typically rely on funding from partners or loans from banks.

Overall, the main differences between a public company and a partnership are their ownership structure, legal entity status, liability, management, transferability of ownership, governance, and capital requirements.

DIFFERENCE BETWEEN PUBLIC COMPANY AND PARTNERHIP

The key differences between a public company and a partnership are as follows:

1. Ownership: A public company is owned by shareholders, while a partnership is owned by two or more partners.

4. Management: In a public company, the board of directors is responsible for managing the company, while in a partnership, all partners share the management responsibilities.

6. Governance: A public company is subject to more stringent regulations and governance requirements compared to a partnership, which has more flexibility in its operations and decision-making.

7. Capital requirements: Public companies require a larger amount of capital to be raised from the public through an Initial Public Offering (IPO) to finance their operations and expansion, while partnerships typically rely on funding from partners or loans from banks.

Multiple Choice Questions:

1. What are the core values of Company-AN?

A. Customer satisfaction, innovation, teamwork, and integrity.

B. Professionalism, ethics, diversity, and creativity.

C. Efficiency, productivity, profitability, and growth.

D. None of the above.

2. Which of the following is NOT a product or service offered by Company-AN?

A. Software solutions

B. Hardware products

C. Financial services

D. Consulting services

E. Support and maintenance services

3. What is a joint stock company?

A. A form of business organization owned by shareholders who have invested capital in the company.

B. A company that is formed by a group of individuals who come together to achieve a common purpose.

C. A legal entity that is created under the laws of a particular country to conduct business activities.

D. A type of company that is classified based on its legal structure, such as a limited liability company (LLC) or a corporation.

4. What is one of the primary advantages of a joint stock company?

a) Access to more capital

b) Limited control over the company's operations

c) Lack of involvement and influence in the company's affairs

d) Requirement to comply with disclosure requirements

5. What is one disadvantage of a joint stock company?

a) Limited liability for shareholders

b) Perpetual existence

c) Complex structure and compliance requirements

d) Transferability of ownership

6. What is one advantage of professional management in a joint stock company?

a) Higher risk for shareholders

b) Limited control over the company's operations

c) Greater flexibility and liquidity

d) More efficient and effective decision-making

7. Which type of company is owned and operated by one person?

a) Partnership

b) Corporation

c) Sole proprietorship

d) LLC

8. Which type of company is owned and operated by a group of individuals or businesses who work together to achieve common goals and share in the profits and losses?

a) Franchise

b) Limited Liability Company

c) Cooperative

d) Nonprofit

9. What is the characteristic of a public company?

a) Owned by a limited number of individuals

b) Not publicly traded on a stock exchange

c) Must comply with regulations established by government agencies

d) Financial performance is not reported to shareholders

10. Which type of company can raise large amounts of capital?

a) Limited Liability Company

b) Corporation

c) Joint Stock Company

d) Holding Company

11. Which of the following is a privilege enjoyed by private companies?

a. Mandatory public disclosure of financial information

b. Greater public scrutiny

c. More regulatory requirements

d. Flexibility in management

12. What is the maximum number of owners a One Person Company (OPC) can have?

a. One

b. Two

c. Three

d. Four

13. Which of the following is a benefit of OPCs?

a. Higher compliance costs compared to other types of companies

b. Limited liability protection for the owner

c. No tax benefits or exemptions under the Income Tax Act

d. Compulsory appointment of independent directors

14. What is a Government Company?

a) A type of company owned by private investors

b) A type of company owned and operated by the government

c) A type of company owned by foreign entities

d) A type of company owned by non-governmental organizations

15. What is the main purpose of a Government Company?

a) To promote social objectives

b) To generate profits for private investors

c) To provide essential goods and services

d) To compete with private companies

16. What is the key difference between a private company and a public company?

a) The ownership structure

b) The number of shareholders

c) The disclosure requirements

d) The amount of capital required

17. What is the main difference between a public company and a partnership?

a) The liability of shareholders

b) The management structure

c) The transferability of ownership

d) The legal entity status

18. Who owns a public company?

a) Two or more partners

b) The government

c) Shareholders

d) Bankers

19. Who shares the management responsibilities in a partnership?

a) The board of directors

b) All partners

c) The CEO

d) The CFO

20. What is the transferability of ownership in a partnership?

a) Ownership can be easily bought and sold on the stock exchange

b) Ownership cannot be transferred without the consent of all partners

c) Ownership can be transferred to anyone without any restrictions

d) Ownership can only be transferred to family members

True-False Questions:

1. Company-AN is a leading global company that provides a wide range of products and services to customers worldwide. (True/False)

2. The owners of a company are called shareholders, and they own shares in the company that represent their ownership stake. (True/False)

3. The liability of the shareholders in a joint stock company is unlimited. (True/False)

4. A joint stock company has perpetual existence, which means that it can continue to exist even if its shareholders change. (True/False)

5. Shareholders in a joint stock company have democratic control over the company. (True/False)

6. The liability of shareholders in a joint stock company is limited to the amount of their investment in the company. - True or False

7. The shares of a joint stock company are not freely transferable. - True or False

8. Joint stock companies that are publicly traded are not subject to public scrutiny and disclosure requirements. - True or False

9. A sole proprietorship has unlimited liability for its debts. True or False

10. Public companies are owned by shareholders who can buy and sell shares in the company on a stock exchange. True or False

11. Private companies have to comply with the same regulations as public companies. True or False

12. Private companies may have more flexibility in their operations and decision-making processes compared to public companies. True or False

13. Private companies have more autonomy and flexibility in their operations and decision-making processes compared to public companies. (True/False)

14. OPCs are suitable for entrepreneurs who want to operate as a separate legal entity and enjoy the benefits of limited liability while having complete control over the company's operations. (True/False)

15. OPCs have the ability to issue shares to the public or have more than one owner. (True/False)

16. A Government Company is owned and operated by the government. (True/False)

17. Private companies can have an unlimited number of shareholders. (True/False)

18. Public companies require a larger amount of capital to be raised from the public through an Initial Public Offering (IPO) to finance their operations and expansion. (True/False)

19. In a partnership, all partners share the management responsibilities. (True/False)

20. A public company is a separate legal entity from its shareholders. True or False

21. The liability of shareholders in a public company is unlimited. True or False

22. Shares of a public company cannot be easily bought and sold on the stock exchange. True or False

VERY SHORT ANSWER QUESTIONS

Q.1. Define Company.

Ans. A company is a legal entity that is formed to conduct business activities and make a profit. It is typically owned by shareholders and managed by a board of directors or executives.

Q.2. What is a private company.

Ans. A private company is a type of business entity that is owned by a small group of people, such as individuals, families, or private equity firms. It is not publicly traded on a stock exchange and is not required to disclose its financial information to the public.

Q.3. What do you mean by separate legal entity.

Ans. Separate legal entity refers to the legal status of a company or organization as an independent entity, separate from its owners or members. This means that the company has its own legal rights and obligations, can enter into contracts, sue and be sued, and conduct business in its own name. The company's assets and liabilities are also separate from those of its owners, providing a level of protection to the owners' personal assets in the event of the company's financial difficulties or legal disputes.

Q.4. Explain the concept of ‘Separation of ownership and management of accompany form off companies. Discuss.

Ans. The separation of ownership and management is a fundamental concept in the form of companies. It refers to the fact that ownership of a company, typically in the form of shares held by shareholders, is separate from the management of the company, which is typically undertaken by a board of directors and executive team.

Q.5. Define; Government company’

Ans. A government company is a type of company in which the majority of the share capital is held by the government or a government agency. It operates like any other company, with the objective of making a profit, but is subject to government regulations and oversight. Government companies are often established to provide essential services or infrastructure, such as energy, transportation, or telecommunications, or to support economic development in specific regions or industries.

SHORT ANSWER QUESTIONS

Q.1. The joint stock company from of business organization is improvement over partnership form of organisation. Explain

Ans. The joint stock company is considered an improvement over the partnership form of organization for several reasons:

1. Limited liability: A joint stock company provides limited liability to its shareholders, meaning their personal assets are not at risk if the company incurs debt or is sued. This is not the case in a partnership, where partners are personally liable for the debts and obligations of the business.

2. Continuous existence: A joint stock company has a perpetual existence and does not depend on the lifespan or participation of its shareholders. In contrast, a partnership may dissolve upon the death, retirement, or withdrawal of a partner.

3. Transferability of shares: Shares in a joint stock company can be easily bought and sold, providing greater liquidity and flexibility than a partnership, where the transfer of ownership is more complex.

4. Access to capital: A joint stock company can raise larger amounts of capital by issuing shares to a wide range of investors, whereas a partnership may be limited by the amount of capital its partners can contribute.

5. Professional management: A joint stock company can hire professional managers to run the business, whereas in a partnership, the partners are responsible for managing the business, which may not be their area of expertise.

Overall, the joint stock company provides several advantages over the partnership form of organization, making it a more attractive option for businesses looking to raise capital, limit liability, and ensure continuity of operations.

Q.2. Give the most important points of difference between the company and partnership.

Ans. Here are some of the most important points of difference between a company and a partnership:

1. Legal status: A company is a separate legal entity distinct from its shareholders, while a partnership is not a separate legal entity and is owned by the partners themselves.

2. Liability: Shareholders in a company have limited liability, meaning their personal assets are not at risk in the event of the company's debts or legal issues. In a partnership, partners have unlimited liability, meaning they are personally responsible for the debts and obligations of the business.

3. Ownership and management: In a company, ownership and management are separate, with shareholders providing capital and electing a board of directors to oversee management. In a partnership, ownership and management are usually the same, with partners responsible for managing the business.

4. Capital raising: Companies can raise capital by issuing shares to the public or private investors. Partnerships usually rely on contributions from partners to fund the business.

5. Transferability of ownership: Shares in a company can be easily transferred or sold to others, while partnership ownership is not easily transferable and requires the consent of all partners.

6. Taxation: Companies are taxed as separate entities, while partnerships are not taxed at the entity level, with profits and losses passed through to the partners.

These are some of the key differences between a company and partnership, but there may be other differences depending on the specific circumstances of each business.

Q.3. Differentiate between public and private company.

Ans. The main differences between a public and a private company are as follows:

1. Ownership: A public company is owned by the general public, while a private company is owned by a small group of individuals or entities, such as founders, family members, or private equity firms.

2. Shareholders: A public company has a large number of shareholders who can buy and sell shares freely on the stock market, while a private company has a limited number of shareholders who cannot sell their shares without the consent of other shareholders.

3. Public trading: Shares of a public company are publicly traded on a stock exchange, while shares of a private company are not traded on a public exchange.

4. Disclosure requirements: Public companies are required to disclose financial and other information to the public, including annual reports, financial statements, and other disclosures, while private companies have no such requirements.

5. Regulation: Public companies are subject to extensive regulation and oversight by government agencies and stock exchanges, while private companies have fewer regulatory requirements.

6. Capital raising: Public companies can raise large amounts of capital by issuing shares to the public, while private companies are limited in their ability to raise capital and may rely on private investments.

These are the main differences between public and private companies, but there may be other differences depending on the specific circumstances of each company.

Q.4. The principle of ‘limited liability’ responsible for the growth and explain of the joint stock companies. Discuss.

Ans. The principle of limited liability is one of the most important factors responsible for the growth and success of joint stock companies. Limited liability means that the shareholders of a company are only liable for the amount of capital they have invested in the company and are not personally liable for any debts or liabilities incurred by the company. This principle provides a significant degree of protection to the shareholders' personal assets, which is not available in other forms of business organizations such as partnerships.

Limited liability provides several advantages to the joint stock companies. First, it encourages risk-taking among investors, who can invest in the company without worrying about losing more than their investment in case the company incurs losses or fails. This promotes entrepreneurship and innovation, which are critical drivers of economic growth.

Second, limited liability allows joint stock companies to access large amounts of capital from a diverse group of investors. Investors are more willing to invest in joint stock companies because their potential losses are limited to the amount they have invested in the company. This makes it easier for joint stock companies to raise capital and expand their operations.

Finally, limited liability provides stability and continuity to joint stock companies. The company's operations are not affected by changes in ownership or management, and the company can continue to operate even if some shareholders sell their shares.

In summary, the principle of limited liability has been instrumental in the growth and success of joint stock companies. It has encouraged risk-taking, enabled access to large amounts of capital, and provided stability and continuity to these companies.

Q.5. Define private company. Explain its privileges.

Ans. A private company is a type of business organization that is owned and controlled by a small group of individuals or entities. Private companies are not publicly traded on stock exchanges, and they often have fewer regulatory requirements compared to public companies.

One of the main privileges of a private company is that it has limited liability protection for its shareholders. This means that the personal assets of shareholders are protected from the liabilities and debts of the company. This protection is particularly valuable for small business owners who want to limit their personal financial exposure in case the business runs into financial difficulties.

Another privilege of a private company is that it has more flexibility in its operations compared to public companies. Private companies are not subject to the same level of scrutiny as public companies and therefore have more freedom to make decisions without public scrutiny. They also have more control over their operations and can choose to focus on long-term growth rather than short-term profits.

Private companies also have more control over their ownership and management structure. The shareholders of a private company are often closely connected and have a more direct influence on the company's operations and direction. This can lead to a more cohesive and efficient decision-making process compared to public companies.

Finally, private companies are not required to disclose as much information as public companies. This allows private companies to keep their operations and financial information confidential, which can be advantageous for companies that want to maintain their competitive advantage or protect their intellectual property.

In summary, the privileges of a private company include limited liability protection, more flexibility in operations, greater control over ownership and management, and less public scrutiny and disclosure requirements. These privileges make private companies an attractive option for small business owners and entrepreneurs who want to maintain greater control over their business operations and finances.

LONG ANSWER QUESTIONS

Q.1. ‘A joint stock company is aid to be an artificial person, created by law, having a separate legal entity with a perpetual succession and a common seal. Discuss the statement.

Ans. The statement that a joint stock company is an artificial person, created by law, having a separate legal entity with perpetual succession and a common seal is an accurate description of the legal status of a joint stock company. Let's break it down:

1. Artificial person: A joint stock company is an artificial person because it is not a natural person and does not have physical existence like a human being. It is created by law and is treated as a separate entity from its shareholders and directors.

2. Created by law: A joint stock company is created by law, specifically through the process of incorporation. This means that it is a legal entity with legal rights and obligations.

3. Separate legal entity: A joint stock company is a separate legal entity from its shareholders and directors. This means that it can enter into contracts, sue and be sued in its own name, own property, and conduct business activities.

4. Perpetual succession: A joint stock company has perpetual succession, which means that it continues to exist even if its shareholders or directors change. The company is not affected by the death or departure of any of its members, and its existence is not limited by a specific period of time.

5. Common seal: A joint stock company has a common seal, which is a stamp or device used to authenticate documents and contracts. The seal is usually kept in the custody of the company secretary and is used to signify the company's approval of a document or contract.

In summary, a joint stock company is an artificial person created by law with a separate legal entity, perpetual succession, and a common seal. These features provide the company with legal protection and stability, which encourages investment and growth. The company can continue to operate even if there are changes in ownership or management, and it can enter into contracts and conduct business activities in its own name.

Q.2.What are the different kinds of the company? Discuss the most common from of the joint stock company prevailing in india.

Ans. There are various types of companies that can be formed under different laws in different countries. However, in India, the following are the most common forms of companies:

1. Private Limited Company: This type of company is formed with a minimum of two and a maximum of 200 members. It has limited liability protection for its shareholders and is not allowed to invite the public to subscribe to its shares or debentures.

2. Public Limited Company: This type of company can have any number of members and is allowed to invite the public to subscribe to its shares or debentures. It also has limited liability protection for its shareholders.

3. One Person Company: This is a new type of company introduced in India in 2013. It can be formed with just one member and has limited liability protection for the sole member.

4. Limited Liability Partnership (LLP): This is a hybrid form of partnership and company. It has the flexibility and tax benefits of a partnership, along with limited liability protection for its partners.

The most common form of the joint stock company prevailing in India is the Private Limited Company. This is because it offers limited liability protection to its shareholders, along with more flexibility in terms of operations and management compared to a Public Limited Company. Private Limited Companies are also easier to form and maintain compared to other forms of companies. In recent years, the One Person Company and Limited Liability Partnership have also gained popularity among entrepreneurs and small businesses in India due to their unique features and benefits.

Q.3. What do you understand by the ‘private company’ Discuss its various privileges.

Ans. A private company is a type of company that is privately held, meaning its shares are not traded on a public stock exchange. In a private company, the ownership is restricted to a limited number of shareholders, and the company is not allowed to invite the public to subscribe to its shares or debentures.

The various privileges of a private company are as follows:

1. Limited liability protection: Like other forms of companies, a private company also provides limited liability protection to its shareholders. This means that the shareholders' liability is limited to the amount they have invested in the company, and they are not personally liable for any debts or losses incurred by the company.

2. Fewer compliance requirements: Private companies are subject to fewer compliance requirements compared to public companies. For example, private companies are not required to hold annual general meetings, and they have more flexibility in terms of reporting and disclosure requirements.

3. Flexibility in management: Private companies have more flexibility in terms of management and decision-making compared to public companies. The shareholders can decide on the management structure and can make decisions quickly and efficiently.

4. Confidentiality: Private companies enjoy greater confidentiality as they are not required to disclose their financial and operational information to the public. This allows private companies to maintain their competitive advantage and protect their trade secrets.

5. Lower cost of formation: The cost of forming a private company is relatively low compared to other forms of companies, making it an attractive option for small businesses and startups.

In summary, the various privileges of a private company include limited liability protection, fewer compliance requirements, flexibility in management, confidentiality, and lower cost of formation. These privileges make private companies a popular choice among entrepreneurs and small businesses who want to limit their liability and maintain control over their business operations.

Q.4. Define’ public company’ and ‘private company’ Distinguish between these two.

Ans. A public company is a type of company whose shares are traded on a public stock exchange, and it can invite the public to subscribe to its shares or debentures. A private company, on the other hand, is a type of company that is privately held, meaning its shares are not traded on a public stock exchange, and it is not allowed to invite the public to subscribe to its shares or debentures.

The following are some of the key differences between a public company and a private company:

1. Ownership: A public company has a large number of shareholders, while a private company has a limited number of shareholders, often including family members, friends, and employees.

2. Shareholding: The shares of a public company are freely transferable, while the shares of a private company are often subject to restrictions on transfer and ownership.

3. Disclosure requirements: Public companies are subject to greater disclosure requirements compared to private companies, as they are required to publish their financial statements and other information for the public. Private companies, on the other hand, have more privacy and do not have to disclose their financial information to the public.

4. Regulatory compliance: Public companies are subject to greater regulatory compliance requirements compared to private companies, as they are required to comply with the regulations of the stock exchange and securities laws. Private companies have fewer compliance requirements and are subject to fewer regulations.

5. Capital raising: Public companies can raise large amounts of capital by issuing shares to the public, while private companies can only raise capital from a limited number of investors.

In summary, the main difference between a public company and a private company is that a public company has shares traded on a public stock exchange, can invite the public to subscribe to its shares or debentures, and is subject to greater disclosure and regulatory requirements. A private company, on the other hand, has shares held privately, cannot invite the public to subscribe to its shares or debentures, and has more privacy and fewer regulatory requirements.

Q.5. A private company enjoys the advantages of the public company and partnership both. Discuss.

Ans. A private company enjoys certain advantages of both a public company and a partnership. Some of these advantages are as follows:

1. Limited liability protection: Like a public company, a private company provides limited liability protection to its shareholders, which means that their personal assets are not at risk in case the company faces financial difficulties. This provides an advantage over a partnership where the partners have unlimited liability and their personal assets are at risk.

2. Flexibility in management: Similar to a partnership, a private company offers more flexibility in management, as the shareholders can decide on the management structure and make decisions quickly and efficiently.

3. Privacy: A private company enjoys greater privacy than a public company, as it is not required to disclose its financial and operational information to the public. This allows private companies to maintain their competitive advantage and protect their trade secrets.

4. Lower cost of formation: A private company can be formed with relatively low cost compared to a public company, making it a more attractive option for small businesses and startups.

5. Less regulatory compliance: A private company is subject to fewer regulatory compliance requirements compared to a public company. This means that the private company has more freedom in terms of its operations, and the cost of compliance is lower than that of a public company.

In summary, a private company offers a combination of the advantages of a public company and a partnership. It provides limited liability protection to its shareholders, flexibility in management, greater privacy, lower cost of formation, and less regulatory compliance compared to a public company. At the same time, it offers a degree of ownership and control to its shareholders similar to that of a partnership.

Q.6. What is a ‘joint stock company’ Discuss its characteristics, advantages and dis-advantages

Ans. A joint stock company is a form of business organization that enables multiple individuals or entities to contribute capital to form a legal entity with its own rights and obligations. This type of company is also known as a corporation or a limited liability company.

Characteristics of a Joint Stock Company:

Legal Entity: A joint stock company is a legal entity that has its own legal identity distinct from its members.

Limited Liability: Members of a joint stock company have limited liability. This means that their liability is limited to the amount of capital they have invested in the company.

Perpetual Succession: A joint stock company has perpetual succession. It means that the company continues to exist even if any of its members dies, becomes insolvent, or decides to leave the company.

Transferability of shares: The ownership of a joint stock company is represented by shares, which are freely transferable among its members.

Professional Management: A joint stock company is managed by a board of directors who are elected by the shareholders. The board hires professional managers to run the day-to-day operations of the company.

Advantages of a Joint Stock Company:

Large Capital Base: A joint stock company can raise a large amount of capital from its members, which can be used to fund large projects.

Limited Liability: Members have limited liability, which encourages them to invest more in the company, knowing that their personal assets are not at risk.

Perpetual Succession: A joint stock company has perpetual succession, which means that the company can continue to exist even if any of its members leave or die.

Professional Management: A joint stock company is managed by professional managers who have the expertise to run the company efficiently.

Transferability of shares: The ownership of a joint stock company is represented by shares, which are freely transferable among its members. This makes it easy for members to enter or exit the company.

Disadvantages of a Joint Stock Company:

Complex Legal Formalities: Setting up a joint stock company involves complex legal formalities, such as registration, compliance with company laws, and taxation laws.

Lack of Personal Control: Members of a joint stock company do not have direct control over the day-to-day operations of the company, which may lead to conflicts between shareholders and the board of directors.

Shareholder Conflicts: Conflicts may arise between shareholders over the distribution of profits, dividend payouts, and other issues.

Double Taxation: A joint stock company is subject to double taxation, which means that the company pays taxes on its profits, and the shareholders pay taxes on the dividends they receive.

Costly to set up: It can be expensive to set up a joint stock company, as it involves various legal and regulatory requirements that need to be fulfilled.

In conclusion, a joint stock company is a type of business organization that offers significant advantages, such as a large capital base, limited liability, perpetual succession, and professional management. However, it also has some disadvantages, such as complex legal formalities, lack of personal control, shareholder conflicts, double taxation, and high costs to set up.

A. One Word or One Line Questions.

Q. 1. What do you mean by co-operative society ?

Ans. A form of organisation, where in persons voluntarily associate together as human being on the basis of equality for the promotion of economic interests of themselves.

Q. 2. Under which act co-operative societies is registered?

Ans. A co-operative society is registered under Indian Co-operative Societies Act, 1912.

Q. 3. How many members can start a co-operative society?

Ans. 10 adult members.

Q. 4. How is capital raised by co-operative society?

Ans. Capital is raised by issuing shares to the members.

Q. 5. What is the status of liability of members of the co-operative society?

Ans. The liability of members is limited.

Q. 6. Name office bearers of co-operative society.

Ans. President, Vice-president, Secretary, Treasurer.

Q. 7. Give any two principles of Co-operative Societies.

Ans. (1) Voluntary Membership

(2) Democratic Management

Q. 8. Is registration of the co-operative society is compulsory?

Ans. No, it is optional.

Q. 9. State two merits of a co-operative society.

Ans. (i) Open membership

(ii) Democratic management.

Q. 10. Which co-operative society is started to protect the interests of weaker sections?

Ans. Consumer co-operative society.

Q.11. Which-co-operative societies helps its members to do farming on scientific basis ?

Ans. Co-operative farming society.

Q. 12. Which-co-operative society extend credit facilities to members?

Ans. Credit co-operatives.

Q. 13. Name a co-operative society providing help their members to construct their own house.

Ans. Housing Co-operatives.

Q. 14. Which societies help small producers in selling their products at good price?

Ans. Marketing co-operative societies.

Q. 15. What is the voting pattern for members of a co-operative society?

Ans. ‘One person, one vote’.

B. Fill in the blanks

1. The co-operative society is registered under..........

2. Membership of co-operative societies is.................

3. The management of a co-operative society is always elected in .......... way.

4. In co-operative society, the voting rights are based on the principle..........

5. The primary objective of the society is..........

6. Trading in co-operative societies is done one ............ basis.

Ans. 1. Indian Co-operative Societies Act, 1912, 2.voluntary, 3.democratic, 4.one person, one vote, 5. Service First, Profit Second, 6.cash.

C. True or False

1. The main aim of co-operative societies is to protect the interest of the society.

2. High rate of interest is paid to members in reward for their contribution to the capital of society.

3. The Primary objective of the society is ‘Profit first, Service second’.

4. In a co-operative society, the voting rights are based on ‘One Person, One Vote’.

5. In co-operative societies, trading is done on ‘credit basis’.

Ans. 1. True, 2. False, 3. False, 4. True, 5. False.

D. MCQ

1. The consumer co-operatives are established for the benefit of

(a) Upper class people

(b) Lower and Middle Class People

(d) None of the above

2. The main aim of co-operative society is to

(a) Earn Profits

(b) Serve the Society

(d) None of the above

3. Co-operative societies generally transact business on:

(a) Cash Basis

(b) Credit Basis

(d) None of the above

4. Which one of the following is the feature of co-operative societies?

(a) Voluntary membership

(b) Democratic management

(d) All of these.

5. Which one of the following is not the merit of co-operative society?

(a) Open and voluntary membership

(b) Democratic management

(d) Low management cost.

6. Which one of the following is not the limitation of co-operative societies?

(a) Lack of Secrecy

(b) Inefficiency of management

(d) Government interference.

Ans. 1. (b), 2. (b), 3. (a), 4. (d), 5. (c), 6. (c)

Plus One

Thursday, 20 July 2023

COMPANY-AN INTRODUCTION

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