UNIT-II: JOINT STOCK COMPANY: Joint Stock Company - Meaning - Definition - Characteristics - Advantages
and Disadvantages - Kinds of Companies -Promotion - Stages of Promotion - Promoter - Characteristics - Kinds -
Preparation of Important Documents - Memorandum of Association - Clauses - Articles of Association - Contents –
Prospectus - Contents – Red herring Prospectus- Statement in lieu of Prospectus (As per Companies Act, 2013).
SHORT ANSWER QUESTIONS
1. Discuss the concept of joint stock company?
Ans: According to the Companies Act 2013 a joint stock company means an Association of individuals working
together under a single separate legal entity registered under the Companies Act 2013. It has limited share
liabilities off shareholders who contributed to the company's stock.
“Joint stock companies are voluntary Association of individuals for profit, having a capital divided into
transferable shares, the ownership of which is condition of membership”
2. What is mean by one-person company?
Ans: Section 2(62) of the Companies Act 2013 states One Person Company (OPC) means a company which
has only one person as a member.
One Person Company provides the benefits of a sole proprietorship find company. One Person
Company is run in the same way as sole proprietor ship and limiting by the liability of the owner to the shares
distributed by him. All the provisions of the Companies Act applicable to the private company should also be
applicable to One Person Company. One Person Company shall be treated as private company for all legal
purpose with only one member.
3. State the features of your private company?
Ans: Section 2 (68) of the Companies Act 2013 states that private company is a company having at least Rs.
1,00,000 of paid up capital or more. It does not grant the right to transfer shares or invite subscription to shares
or debentures from public. Also, it does not accept or invite deposits from people other than its directors,
member signed their relatives. More over its membership is restricted to 200 members only.
The private limited company has the following features,
i) It limits the right to transfer its shares.
ii) It restricts its members to 50 not including its employee members
iii) It forbids any invitation to public first subscribing for any shares or D ventures of the company
iv) It forbids any invitation or acceptance of deposits from other persons and allows invitation or acceptance
of deposits from its members, directors or their relatives.
4. State the features of a public company?
Ans: Section 2(7) The Companies Act 2013 defines a public company mean a company which is not a private
company it must have a minimum paid up capital of rupees 5 lacs or such higher capital, as may be prescribed.
Features of a public company
i) It is formed with minimum of seven members and there is no restriction on maximum number of
members
ii) Invites general public to subscribe to its shares.
iii) A public company permits the shareholders to transfer their shares.
iv) A public company should have a minimum paid up capital of Rs 5,00,000/-.
v) A public company should allot its shares within 120 days from the issue of prospectus.
vi) Every public company should obtain a certificate of commencement before starting its business from
the registrar of companies.
vii) As per the amended Companies Act 2013 come out there is no requirement of minimum paid up capital
for a public company.
5. What is mean by promotion of a company?
Ans: Promotion means the process of preparing, planning and aligning the various inputs needed for proper
functioning of your business in other words. Promotion of a company is the first important stage where
necessary steps are taken for bringing the idea of your company into practice. It is the process of planning and
arranging various inputs required for running an enterprise. Promotion involves identification of opportunities,
studying the feasibility, assembling the requirements, financing the proposition etc.
6. Who is the promoter?
Ans: Section 2(69) of the Companies Act 2013 defines the promoter as a person,
who has been named as such in prospectus or is defined by the company in the annual return.
Who has control over the affairs of the company, directly or indirectly.
, In accordance with whose advice, directions or instructions the board of directors of the company is accustomed
to the Act.
A promoter is a person who initiates the setup of the company and controls its works. A promoter maybe an
individual from a firm audio body corporate.
7. Describe the meaning of capital subscription?
Ans: Capital subscription is also known as raising of capital. After completion of all the formalities of
incorporation of your company, the next stage is to raise funds. Any public company or private company having
a share capital cannot commence its business unless minimum subscription as stated in the prospector's has been
subscribed to. A company not having share capital may commence business after obtaining certificate of
incorporation but those companies who are having share capital should not commence its business without
having the minimum subscription will stop demonstrated for allotment should be duly received in cash and
allotment has been made properly.
8. Statutory companies?
Ans: Statutory company refers to a company incorporated and governed through a special act passed by the
state legislature or by the parliament to perform special public undertakings would stop it does not require
articles of Association and memorandum of Association. Its annual report is needed to be presented to the state
legislature or to the parliament each year. Some of the important structural companies are Reserve Bank of India
(RBI), food Corporation of India and life insurance Corporation of India.
Characteristics of statutory company are as follows
i) Statutory companies are established or formed by a special statute under which the objectives come up
powers and functions of these companies are being defined and stated
ii) It has separate legal entity with which it can maintain its own property and make contracts and file suit
on its own name
iii) Its employees are appointed by the company itself.
iv) The main objective of these type of companies are to serve better to the public.
9. What is red herring prospectus?
Ans: Red herring prospectus is defined under section 32 of the Companies Act 2013. according to this section
red herring prospectus means a prospectus which does not include complete particulars of a quantum or price
of the securities included in the document. It consists of either floor price of the securities which is offered or
the price band along with the range within which the bids can move our fluctuate. In case of unlisted public
companies, red herring prospectus, need to be filed with the register of companies. Whereas, in case of listed
companies it is to be filed with SEBI. Both type of companies needs to file prospectus at least three days before
the date of opening offer.
At the time of closing off offer, prospects must be filed with the registrar and the SEBI. It must include
information relating to total capital raised, closing price of securities and details not included in red herring
prospectus.
10. What is shelf prospectus?
Ans: Shelf prospectus is defined under section 31 of Companies Act 2013, shelf prospectus is defined as your
prospects in which the securities are class of securities are issued for subscription in one or more than one issues
over a period of time. It enables companies to raise capital from the public in more than one issue and also
without issue of your new or fresh prospectus post up the validity of shelf prospectus is of one year from the
date of issue of securities
11. What is statement in lieu of prospectus?
Ans: Statement in lieu of prospectus is a document filed with the registrar of companies at least three days
before the first allotment of shares or debentures under following conditions,
When company issues prospectus.
When company issued the prospectus but not preceded to allot any of its shares offered to the public for
subscription.
In simple words, statement in lieu of prospectus can be referred to the situation where a company does
not invite public to subscribe for its shares, but arranges to get money from private sources, it need not issue a
prospectus to the public. In such a case, the promoters are required to prepare your draft prospector's which is
known as statement in lieu of prospectus. As for the Companies Act 2013 the filing of statement in Lee of
prospects has been dispensed.
and Disadvantages - Kinds of Companies -Promotion - Stages of Promotion - Promoter - Characteristics - Kinds -
Preparation of Important Documents - Memorandum of Association - Clauses - Articles of Association - Contents –
Prospectus - Contents – Red herring Prospectus- Statement in lieu of Prospectus (As per Companies Act, 2013).
SHORT ANSWER QUESTIONS
1. Discuss the concept of joint stock company?
Ans: According to the Companies Act 2013 a joint stock company means an Association of individuals working
together under a single separate legal entity registered under the Companies Act 2013. It has limited share
liabilities off shareholders who contributed to the company's stock.
“Joint stock companies are voluntary Association of individuals for profit, having a capital divided into
transferable shares, the ownership of which is condition of membership”
2. What is mean by one-person company?
Ans: Section 2(62) of the Companies Act 2013 states One Person Company (OPC) means a company which
has only one person as a member.
One Person Company provides the benefits of a sole proprietorship find company. One Person
Company is run in the same way as sole proprietor ship and limiting by the liability of the owner to the shares
distributed by him. All the provisions of the Companies Act applicable to the private company should also be
applicable to One Person Company. One Person Company shall be treated as private company for all legal
purpose with only one member.
3. State the features of your private company?
Ans: Section 2 (68) of the Companies Act 2013 states that private company is a company having at least Rs.
1,00,000 of paid up capital or more. It does not grant the right to transfer shares or invite subscription to shares
or debentures from public. Also, it does not accept or invite deposits from people other than its directors,
member signed their relatives. More over its membership is restricted to 200 members only.
The private limited company has the following features,
i) It limits the right to transfer its shares.
ii) It restricts its members to 50 not including its employee members
iii) It forbids any invitation to public first subscribing for any shares or D ventures of the company
iv) It forbids any invitation or acceptance of deposits from other persons and allows invitation or acceptance
of deposits from its members, directors or their relatives.
4. State the features of a public company?
Ans: Section 2(7) The Companies Act 2013 defines a public company mean a company which is not a private
company it must have a minimum paid up capital of rupees 5 lacs or such higher capital, as may be prescribed.
Features of a public company
i) It is formed with minimum of seven members and there is no restriction on maximum number of
members
ii) Invites general public to subscribe to its shares.
iii) A public company permits the shareholders to transfer their shares.
iv) A public company should have a minimum paid up capital of Rs 5,00,000/-.
v) A public company should allot its shares within 120 days from the issue of prospectus.
vi) Every public company should obtain a certificate of commencement before starting its business from
the registrar of companies.
vii) As per the amended Companies Act 2013 come out there is no requirement of minimum paid up capital
for a public company.
5. What is mean by promotion of a company?
Ans: Promotion means the process of preparing, planning and aligning the various inputs needed for proper
functioning of your business in other words. Promotion of a company is the first important stage where
necessary steps are taken for bringing the idea of your company into practice. It is the process of planning and
arranging various inputs required for running an enterprise. Promotion involves identification of opportunities,
studying the feasibility, assembling the requirements, financing the proposition etc.
6. Who is the promoter?
Ans: Section 2(69) of the Companies Act 2013 defines the promoter as a person,
who has been named as such in prospectus or is defined by the company in the annual return.
Who has control over the affairs of the company, directly or indirectly.
, In accordance with whose advice, directions or instructions the board of directors of the company is accustomed
to the Act.
A promoter is a person who initiates the setup of the company and controls its works. A promoter maybe an
individual from a firm audio body corporate.
7. Describe the meaning of capital subscription?
Ans: Capital subscription is also known as raising of capital. After completion of all the formalities of
incorporation of your company, the next stage is to raise funds. Any public company or private company having
a share capital cannot commence its business unless minimum subscription as stated in the prospector's has been
subscribed to. A company not having share capital may commence business after obtaining certificate of
incorporation but those companies who are having share capital should not commence its business without
having the minimum subscription will stop demonstrated for allotment should be duly received in cash and
allotment has been made properly.
8. Statutory companies?
Ans: Statutory company refers to a company incorporated and governed through a special act passed by the
state legislature or by the parliament to perform special public undertakings would stop it does not require
articles of Association and memorandum of Association. Its annual report is needed to be presented to the state
legislature or to the parliament each year. Some of the important structural companies are Reserve Bank of India
(RBI), food Corporation of India and life insurance Corporation of India.
Characteristics of statutory company are as follows
i) Statutory companies are established or formed by a special statute under which the objectives come up
powers and functions of these companies are being defined and stated
ii) It has separate legal entity with which it can maintain its own property and make contracts and file suit
on its own name
iii) Its employees are appointed by the company itself.
iv) The main objective of these type of companies are to serve better to the public.
9. What is red herring prospectus?
Ans: Red herring prospectus is defined under section 32 of the Companies Act 2013. according to this section
red herring prospectus means a prospectus which does not include complete particulars of a quantum or price
of the securities included in the document. It consists of either floor price of the securities which is offered or
the price band along with the range within which the bids can move our fluctuate. In case of unlisted public
companies, red herring prospectus, need to be filed with the register of companies. Whereas, in case of listed
companies it is to be filed with SEBI. Both type of companies needs to file prospectus at least three days before
the date of opening offer.
At the time of closing off offer, prospects must be filed with the registrar and the SEBI. It must include
information relating to total capital raised, closing price of securities and details not included in red herring
prospectus.
10. What is shelf prospectus?
Ans: Shelf prospectus is defined under section 31 of Companies Act 2013, shelf prospectus is defined as your
prospects in which the securities are class of securities are issued for subscription in one or more than one issues
over a period of time. It enables companies to raise capital from the public in more than one issue and also
without issue of your new or fresh prospectus post up the validity of shelf prospectus is of one year from the
date of issue of securities
11. What is statement in lieu of prospectus?
Ans: Statement in lieu of prospectus is a document filed with the registrar of companies at least three days
before the first allotment of shares or debentures under following conditions,
When company issues prospectus.
When company issued the prospectus but not preceded to allot any of its shares offered to the public for
subscription.
In simple words, statement in lieu of prospectus can be referred to the situation where a company does
not invite public to subscribe for its shares, but arranges to get money from private sources, it need not issue a
prospectus to the public. In such a case, the promoters are required to prepare your draft prospector's which is
known as statement in lieu of prospectus. As for the Companies Act 2013 the filing of statement in Lee of
prospects has been dispensed.
