Ownership Structures — Joint Stock Company

Statement I : A joint stock company is an association of persons having a separate legal existence, perpetual succession and common seal.

Statement II : Mass production does not require huge capital investment and expert professional management.

1. I is only correct
2. II is only correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

I is only correct

Reason — Statement I is correct as a joint stock company is indeed an association of persons having a separate legal existence, perpetual succession and common seal. Its capital is generally divided into shares which are transferable. Statement II is wrong because mass production does require huge capital investment and expert professional management. It was precisely because of these requirements that the joint stock company form of organisation evolved, since sole proprietorship and partnership forms could not meet these needs.

Which of the following statements is wrong?

1. A company has a distinct legal entity independent of its members.
2. Shareholders are the joint owners of the company's property.
3. A company can own property, make contracts and file suits in its own name.
4. There can be contracts between a company and its members but a creditor of the company is not a creditor of its members.

Answer

Shareholders are the joint owners of the company's property.

Reason — Shareholders are not the joint owners of the company's property. Since a company has a separate legal existence independent of its members, the property belongs to the company itself and not to its shareholders. Shareholders only own shares in the company, and they cannot be held liable for the acts of the company.

Statement I : A company is a creation of the law and only the law can bring an end to its existence.

Statement II : The life of a company does depend on the life of its members.

1. Only I is correct
2. Only II is correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

Only I is correct

Reason — Statement I is correct because a company is created by law and only the law can bring an end to its existence through the process of winding up. Statement II is wrong because the life of a company does not depend on the life of its members. The death, insolvency or lunacy of members does not affect the life of the company. Members may come and go but the company goes on until it is wound up. This feature is known as perpetual succession.

Which of the following statements is correct?

1. The death of members affect the life of a company
2. Members may come and go but the company goes on until it is wound up.
3. The members of a company can be held liable for the debts of the company.
4. Shareholders are the joint owners of the company's property.

Answer

Members may come and go but the company goes on until it is wound up.

Reason — Because of the principle of perpetual succession, a joint stock company enjoys uninterrupted existence over a long period of time. The death, insolvency or lunacy of members does not affect the life of the company. It continues to exist even if all its members die. Only the law can bring an end to its existence through winding up.

The features of a joint stock company are :

1. Separate legal existence
2. Limited liability
3. Perpetual succession
4. All of these

Answer

All of these

Reason — The distinctive features of a joint stock company include separate legal existence (a distinct legal entity independent of its members), limited liability (liability of members is limited to the nominal value of shares held), and perpetual succession (uninterrupted existence not affected by death or insolvency of members). Other features include transferability of shares, common seal, separation of ownership and control, voluntary association, artificial legal person, corporate finance, statutory regulation and being a registered body.

Statement I : A shareholder can't withdraw his membership from the company by transferring his shares.

Statement II : In actual practice some restrictions are placed on the transfer of shares.

1. Only I is correct
2. Only II is correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

Only II is correct

Reason — Statement I is wrong because a shareholder is free to withdraw his membership from the company by transferring his shares. The shares of a company are generally transferable. Statement II is correct because in actual practice, some restrictions are placed on the transfer of shares, particularly in the case of private companies which must restrict the right of their members to transfer shares.

A joint stock company is a ............... association of certain persons formed to carry out a particular purpose in common.

1. voluntary
2. corporate
3. legal
4. liable

Answer

voluntary

Reason — A joint stock company is a voluntary association of certain persons formed to carry out a particular purpose in common. Members of a company can join it and leave it at their own free will. There is no compulsion on anyone to become a member of a company.

Assertion (A): Transferability of shares makes public companies more attractive to investors.

Reasoning (R): Public companies allow shareholders to transfer shares without restrictions, providing liquidity to their investments.

1. Both A and R are true, and R is the correct explanation of A.
2. Both A and R are true, but R is not the correct explanation of A.
3. A is true, but R is false.
4. A is false, but R is true.

Answer

Both A and R are true, and R is the correct explanation of A.

Reason — Both Assertion and Reasoning are true. The shares of a public company are listed on the stock exchange and are freely transferable. This means a member can easily sell his shares whenever he wants and need not keep them for life. Such liquidity of investment stimulates investment in industrial and commercial enterprises, which is exactly why transferability of shares makes public companies attractive to investors.

Statement I : A company is an artificial person created by law having no physical body of a natural human being.

Statement II : A company can't exist in the contemplation of law.

1. Only I is correct
2. Only II is correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

Only I is correct

Reason — Statement I is correct because a company is an artificial person created by law having no physical body of a natural human being. Statement II is wrong because a company actually exists only in the contemplation of law. It is competent to enter into contracts and own property in its own name through its authorised representatives.

The merit of a joint company is

1. Continuity of Existence
2. Capital Formation
3. Limited Liability
4. All of these

Answer

All of these

Reason — A joint stock company enjoys several merits including continuity of existence (perpetual succession ensures uninterrupted operations), capital formation (large capital resources can be raised from the public by issuing shares and debentures), and limited liability (members' liability is restricted to the face value of shares held). Other merits include efficient management, transferability of shares, economies of scale, democratic management and goodwill.

Statement I : A company enjoys a good reputation and prestige in the business world.

Statement II : The membership of a public company is large and its ownership is generally diffused.

1. Only I is correct
2. Only II is correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

Both I and II are correct

Reason — Both statements are correct. A company enjoys a good reputation and prestige in the business world due to its goodwill and public confidence built through disclosure of results and compliance with legal regulations. Its activities are subject to scrutiny by auditors and the government, which enhances public trust. The membership of a public company is large and its ownership is generally diffused among a large number of shareholders, which is the basis of democratic management in companies.

Statement I : Red tape and bureaucracy do not permit quick decisions and prompt action.

Statement II : The management of a company is supposed to be carried on according to the collective will of its members.

1. Only I is correct
2. Only II is correct
3. Both I and II are wrong
4. Both I and II are correct

Answer

Both I and II are correct

Reason — Both statements are correct. Red tape and bureaucracy in a company do not permit quick decisions and prompt action because there is little scope for personal initiative and a sense of responsibility. Paid employees tend to play safe and shift responsibility. Also, the management of a company is supposed to be carried on according to the collective will of its members, since members elect their representatives (directors) to manage the company's affairs on behalf of the members.

Statement I : A public company is required to publish and file its accounts.

Statement II : It is very easy to maintain business secrets.

1. Only I is correct
2. Only II is correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

Only I is correct

Reason — Statement I is correct because a public company is required to publish and file its accounts as per legal requirements. Statement II is wrong because it is very difficult to maintain business secrets in a public company. Since the company has to disclose its accounts and other information to the public, regulators and shareholders, lack of secrecy is one of the main disadvantages of a joint stock company.

Types of companies are :

1. Registered Companies
2. Chartered Companies
3. Statutory Companies
4. All of these

Answer

All of these

Reason — Joint stock companies may be classified into three main categories — chartered companies (established by Royal Charter, e.g., British East India Company), statutory companies (established by a Special Act of Parliament or State Legislature, e.g., Reserve Bank of India), and registered companies (established by registration under the Companies Act, e.g., Reliance Industries Ltd.). Registered companies are the most common type in India.

The number of members in a private company are :

1. Minimum = 5, Maximum = 100
2. Minimum = 2, Maximum = 200
3. Minimum = 7, Maximum = No limit
4. None of these

Answer

Minimum = 2, Maximum = 200

Reason — A private company must have a minimum of 2 members and a maximum of 200 members (excluding members who are or were in the employment of the company). This is one of the key distinguishing features of a private company as per the Companies Act, 2013. A public company, in contrast, requires a minimum of 7 members with no maximum limit.

Why is the principle of limited liability important for shareholders in a joint stock company?

1. It allows shareholders to transfer shares freely.
2. It restricts the financial loss of shareholders to the unpaid value of shares.
3. It ensures shareholders participate in daily management.
4. It makes shareholders responsible for company debts.

Answer

It restricts the financial loss of shareholders to the unpaid value of shares.

Reason — The principle of limited liability is important because it restricts the financial loss of shareholders to the nominal/unpaid value of shares held by them. Even if the assets of the company are insufficient to satisfy the claims of the creditors, no member can be called to pay anything more than what is due from him. The personal property of shareholders cannot be attached to meet the company's debts. This encourages people to invest money in a company without fear of unlimited loss.

A company faces criticism for taking too long to make decisions due to bureaucratic delays. Which disadvantage of joint stock companies is highlighted here?

1. Lack of motivation
2. Delay in decision-making
3. Conflict of interests
4. Unhealthy speculation

Answer

Delay in decision-making

Reason — Delay in decision-making is a major disadvantage of joint stock companies. Red tape and bureaucracy do not permit quick decisions and prompt action. There is little scope for personal initiative and a sense of responsibility. Paid employees like to play safe and tend to shift responsibility. This lack of flexibility of operations causes delays in important business decisions.

A shareholder in a public company transfers all their shares to a competitor, leading to significant changes in company control. The board of directors raises concerns about the implications. What feature of public companies allows such an event to occur?

1. Transferability of shares
2. Perpetual succession
3. Limited liability
4. Common seal

Answer

Transferability of shares

Reason — Transferability of shares is the feature that allows a shareholder in a public company to transfer all their shares to anyone, including a competitor. The shares of a public company are listed on the stock exchange and are freely transferable, allowing members to easily sell their shares without the permission of other members. While this provides liquidity, it can also lead to changes in company control if a large block of shares is transferred.

Directors in a joint stock company are personally liable for all debts incurred by the company.

1. True
2. False

Answer

False

Reason — Directors in a joint stock company are not personally liable for the debts incurred by the company. Since a company has a separate legal entity, the liability of every member (including directors who are members) is limited to the nominal value of the shares bought by them or the amount of guarantee given by them. The personal property of directors cannot be attached even if the company is unable to meet its creditors' claims.

Why are joint stock companies better suited for large-scale production than partnerships?

1. Joint ownership of property.
2. Larger capital resources and professional management.
3. Direct involvement of shareholders in management.
4. Fewer legal requirements for incorporation.

Answer

Larger capital resources and professional management.

Reason — Joint stock companies are better suited for large-scale production than partnerships because they can accumulate huge amounts of capital by issuing different types of securities to a large number of investors. A public company can have an unlimited number of members and sell shares to them. In addition, companies can employ highly qualified experts in different areas of business management, which improves the efficiency of business operations and facilitates large-scale operations.

A company provides its members with limited liability but requires them to contribute a specified amount in case of winding up. What type of company is this?

1. Company Limited by Guarantee
2. Unlimited Company
3. Private Company
4. One Person Company

Answer

Company Limited by Guarantee

Reason — In a company limited by guarantee, the liability of every member is limited to the amount which he had undertaken to contribute, if necessary, to the assets of the company at the time of winding up. This amount, called the guarantee, is specified in the Memorandum of Association. The guaranteed amount is in the nature of reserve capital which can be called upon only at the time of winding up. This type of company is generally formed to promote art, literature, sports, education and other non-business activities.

Statement I : The capital share of a company is generally divided into a large number of shares of small value.

Statement II : These shares can only be bought by noble people of the society.

1. Only I is correct
2. Only II is correct
3. Both I and II are correct
4. Both I and II are wrong

Answer

Only I is correct

Reason — Statement I is correct because the share capital of a company is generally divided into a large number of shares of small value, which is known as the feature of corporate finance. Statement II is wrong because these shares are not restricted to noble people; they are purchased by a large number of people from different walks of life. The small value of shares makes them affordable to ordinary investors as well.

A joint stock company faces criticism for holding back crucial financial information from its minority shareholders while making key decisions. What principle of corporate governance is being violated?

1. Transparency and accountability
2. Perpetual succession
3. Limited liability
4. Profit-sharing among shareholders

Answer

Transparency and accountability

Reason — When a company holds back crucial financial information from its minority shareholders, the principle of transparency and accountability is being violated. A company is required to disclose its results, follow all legal regulations, and its activities are subject to scrutiny by auditors and the government. Withholding important information from minority shareholders undermines their right to make informed decisions and erodes public confidence in the company.

The Reserve Bank of India operates under a special law enacted by the Parliament. Under which category does this organization fall?

1. Chartered Company
2. Statutory Company
3. Registered Company
4. Unlimited Company

Answer

Statutory Company

Reason — The Reserve Bank of India is a statutory company because it is established by a Special Act of the Central Legislature. Its objectives, powers and activities are defined by the special law under which it is created. Statutory companies are generally formed to run enterprises of national importance. The State Bank of India is another example of a statutory company in India.

A public company cannot begin its operations until it has obtained a certificate of incorporation and a certificate to commence business.

1. True
2. False

Answer

True

Reason — A public company cannot commence its business until it has obtained two certificates — the Certificate of Incorporation (which brings the company into legal existence) and the Certificate of Commencement of Business. Only after receiving both certificates can a public company start its business operations. This is one of the points of distinction from a private company, which can commence its business immediately after getting the Certificate of Incorporation.

What advantage of a joint stock company is highlighted in this image showing a boardroom meeting of directors?

1. Limited Liability
2. Efficient Management
3. Legal Formalities
4. Lack of Motivation

Answer

Efficient Management

Reason — A boardroom meeting of directors highlights the advantage of efficient management of a joint stock company. A company can employ highly qualified experts in different areas of business management. The combined judgement and experience of several directors facilitates balanced and rational decisions. Having more than one manager results in specialisation and division of labour, while centralised management permits unity of action and continuity of policy.

What do you understand by separate legal existence of a company?

Answer

Separate legal existence means that a company has a distinct legal entity independent of its members. A company is created by law and is treated as an artificial person in the eyes of law. It can own property, make contracts and file suits in its own name.

State three characteristics of a company.

Answer

Three characteristics of a company are:

1. Separate Legal Existence — A company has a distinct legal entity independent of its members.

2. Perpetual Succession — A company is a creation of the law and only the law can bring an end to its existence.

3. Limited Liability — As a company has a separate legal entity, its members cannot be held liable for the debts of the company. The liability of every member is limited.

Give two points of distinction between a company and a partnership.

Answer

Two points of distinction between a company and a partnership are:

What is perpetual succession?

Answer

Perpetual succession means uninterrupted continuous existence of a company. The life of a company does not depend on the life of its members. Members may come and go but the company goes on.

What is a chartered company?

Answer

A chartered company is one which is established by the Royal Charter or special sanction granted by the head of the State. It is granted certain exclusive privileges and powers. For example, the British East India Company.

Why statutory companies are created?

Answer

Statutory companies are created to run enterprises of national importance. A statutory company is established by a Special Act of the Central or State Legislature. Its objectives, powers and activities are defined by the special law under which it is created.

Define private company.

Answer

A private company means a company which has a minimum paid-up capital of one lakh rupees or such higher capital as may be prescribed and which by its Articles of Association :

1. restricts the right of its members to transfer shares, if any;
2. limits the number of its members to 200.
3. prohibits any invitation to the public to subscribe for any shares in, or debentures of the company; and
4. prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

Define a multinational company.

Answer

A multinational company may be defined as a company that has business operations in several countries. Such a company has factories, branches or offices in more than one country.

How does a Government company strike a balance between fulfilling public welfare objectives and maintaining commercial viability?

Answer

A Government company balances public welfare and commercial viability in the following ways:

1. Public Welfare Objective — Since the government holds majority shares, it works for social and economic development.

2. Commercial Working — It is registered under the Companies Act and operates on business-like principles to earn revenue and remain financially sound.

3. Professional Management — It appoints qualified managers to ensure efficient working and proper use of resources.

4. Accountability — It is accountable to the Government and Legislature for public objectives, and also follows company law requirements.

5. Public Service with Efficiency — It provides important goods and services to the public while trying to control costs and avoid losses.

Examples: Hindustan Machine Tools Ltd., Bharat Heavy Electricals Ltd., Mahanagar Telephone Nigam Ltd., National Thermal Power Corporation Ltd. and State Trading Corporation Ltd.

Thus, a Government company combines the service motive of public enterprises with the efficiency and flexibility of business organisations.

Mention the social advantages of a company.

Answer Answer

The social advantages of a joint stock company are as follows:

1. Capital Formation — It collects small savings from a large number of people and uses them for productive purposes.

2. Large-scale Production — Due to large capital and professional management, companies can produce goods on a large scale.

3. Employment Generation — Companies provide jobs to many people in production, management, marketing, finance and other departments.

4. Lower Prices — Large-scale production reduces cost, so goods can be supplied to consumers at reasonable prices.

5. Industrial Development — Companies help in setting up large industries, which promotes economic growth.

6. Diffusion of Wealth — Ownership is spread among many shareholders, so wealth is distributed more widely.

7. Technological Progress — Companies invest in research and development, leading to new methods, better products and innovation.

Thus, joint stock companies contribute to capital formation, employment, industrial growth and overall economic development.

What is a company limited by guarantee?

Answer

A company limited by guarantee is a type of registered company in which the liability of every member is limited to the amount which he had undertaken to contribute, if necessary, to the assets of the company at the time of winding up. This amount, called the guarantee, is specified in the Memorandum of Association of the company. The amount of guarantee may differ from member to member.

"In a joint stock company, the liability of the members are unlimited". Justify statement for or against and give a reason.

Answer

Against the statement.

In a joint stock company, the liability of the members is generally limited, not unlimited. Since a company has a separate legal entity, its members cannot be held personally liable for the debts of the company. The liability of every member is limited to the nominal value of the shares bought by him or to the amount of guarantee given by him.

For instance, if a member has 50 shares of ₹10 each, his liability is limited to ₹500. Even if the assets of the company are insufficient to satisfy the claims of the creditors, no member can be called to pay anything more than what is due from him.

A business is experiencing delays in decision-making due to excessive formalities. Identify the disadvantage of a Joint Stock Company being highlighted and suggest a possible solution.

Answer

The disadvantage being highlighted is Delay in Decisions.

In a company, red tape and bureaucracy do not permit quick decisions and prompt action. There is little scope for personal initiative and a sense of responsibility causing delays in important business decisions that may lead to loss of business opportunities.

Possible Solutions:

1. Delegation of Authority — Sufficient authority should be delegated to lower-level managers and executives.

2. Streamlined Decision-Making Process — The company should establish a clear and simplified decision-making framework that eliminates unnecessary procedural steps and approvals.

3. Empowered Executive Committees — Smaller executive committees can be formed within the board to take prompt decisions on operational matters.

4. Use of Technology — Adoption of digital tools, MIS (Management Information Systems) and online approvals can speed up the decision-making.

5. Performance-Linked Incentives — Linking rewards with performance encourages managers to take initiative and accept responsibility for prompt decisions.

What is the significance of a company's common seal, as depicted here?

Answer

The significance of a company's common seal is as follows:

1. Official Signature — Being an artificial entity, a company cannot act and sign itself. The common seal acts as the official signature of the company on all its important documents.

2. Authorisation of Acts — All the acts of the company are authorised by its common seal.

3. Token of Approval — The common seal is affixed on all important documents as a token of the company's approval.

4. Acts Through Human Beings — Since a company acts through human beings (directors and officers), the common seal binds the company to the acts done by these individuals on its behalf.

5. Legal Validity — Documents stamped with the common seal carry legal validity and can be enforced in courts of law against the company.

What is a company? Explain its essential characteristics.

Answer

A company is a voluntary association of persons formed for carrying on business for profit. Its capital is divided into transferable shares, and the persons holding these shares are called members or shareholders. It comes into existence only after registration under the Companies Act.

Essential Characteristics of a Company

1. Separate Legal Existence — A company has a legal identity separate from its members. It can own property, make contracts, and sue or be sued in its own name.

2. Perpetual Succession — Its existence is not affected by the death, insolvency, or retirement of its members.

3. Limited Liability — Members are liable only up to the value of shares held or the guarantee given by them.

4. Transferability of Shares — Shares are generally transferable, though some restrictions may apply.

5. Common Seal — A company acts through authorised persons, and its common seal is treated as its official signature.

6. Separation of Ownership and Control — Shareholders are the owners, but directors manage the company.

7. Voluntary Association — Persons join and leave the company by their own free will.

8. Artificial Legal Person — It is created by law and has no physical existence.

9. Corporate Finance — Its capital is divided into small shares, enabling many people to invest.

10. Statutory Regulation and Control — It must follow rules and file required documents under company law.

11. Registered Body — A company is formed only after completing legal registration formalities.

"A Joint Stock Company is said to be an artificial person created by law, having a separate entity with a perpetual succession and a common seal." Explain with the help of examples.

Answer

The statement highlights the important features of a joint stock company:

1. Artificial Person Created by Law — A company is an artificial person created by law. It has no physical body, but it can own property, enter into contracts and conduct business in its own name. Example: Reliance Industries Ltd. can buy land, machinery and raw materials in its own name.

2. Separate Legal Entity — A company has a legal identity separate from its members. The shareholders are not the owners of the company’s property. The company can sue and be sued in its own name. Example: In Salomon vs. Salomon & Co. Ltd., it was held that the company had a separate identity from its owner.

3. Perpetual Succession — A company continues to exist even if its members, shareholders or directors change, retire or die. Its existence ends only through legal procedure. Example: Tata Steel continues to exist even though its original founders and many shareholders have passed away.

4. Common Seal — Since a company is an artificial person, it cannot sign documents by itself. Earlier, its common seal was used as its official signature on important documents.

Thus, a joint stock company is a legal person with a separate identity, continuous existence and legal capacity to act in its own name.

Distinguish clearly between a company and a partnership.

Answer

The distinction between a company and a partnership is shown in the following table:

Explain the advantages and disadvantages of a Joint Stock Company.

Answer

1. Large Capital Resources — A public company can raise huge capital by issuing shares to a large number of people. It also enjoys good credit-standing.

2. Limited Liability — The liability of shareholders is limited to the face value of shares held by them. Their personal property cannot be used to pay company debts.

3. Continuity of Existence — A company has perpetual succession. Its existence is not affected by the death, retirement or insolvency of its members.

4. Efficient Management — A company can appoint qualified and experienced managers for different areas of business.

5. Transferability of Shares — Shares of a public company can be easily bought and sold on the stock exchange.

6. Economies of Scale — Due to large capital and large-scale production, a company can reduce costs and enjoy economies of scale.

7. Democratic Management — The Board of Directors is elected by shareholders and is accountable to them.

8. Goodwill and Public Confidence — A company enjoys public confidence because it has to publish accounts and follow legal regulations.

1. Legal Formalities — Formation of a company is costly and time-consuming due to many legal requirements.

2. Lack of Motivation — Directors and employees may not take personal interest because ownership and management are separate.

3. Delay in Decisions — Decision-making may be slow due to red tape, bureaucracy and many levels of management.

4. Corrupt Management — Dishonest directors may misuse company property or manipulate accounts for personal gain.

5. Excessive Government Control — Companies have to follow many legal rules, which may reduce flexibility.

6. Unhealthy Speculation — Shares of public companies are traded on stock exchanges, which may lead to speculation and price fluctuations.

7. Conflict of Interests — Conflicts may arise between shareholders, directors, debenture holders and employees.

8. Lack of Secrecy — A public company has to publish its accounts and reports, so business secrets cannot be easily maintained.

"A Joint Stock Company is the best form of business organisation." Do you agree? Give reasons.

Answer

Yes, I agree that a Joint Stock Company is generally considered the best form of business organisation, especially for large-scale enterprises. The reasons supporting this view are as follows:

1. Large Capital Resources — A public company can raise huge amounts of capital by issuing shares and debentures to an unlimited number of investors.

2. Limited Liability — The liability of shareholders is limited to the face value of shares held by them.

3. Perpetual Succession — The company enjoys uninterrupted existence. This continuity is vital for long-term projects, business planning and building goodwill over time.

4. Professional Management — Companies can employ highly qualified experts in various functional areas.

5. Transferability of Shares — Shares of public companies are freely transferable on stock exchanges, providing liquidity to investors.

6. Economies of Scale — The large capital and professional management enable companies to undertake large-scale operations and achieve economies of scale.

7. Democratic Management — Members elect directors who manage the company on their behalf. Auditors and government scrutiny build public confidence.

What advantages does a Joint Stock Company enjoy over other forms of business organisations?

Answer

A Joint Stock Company enjoys several advantages over other forms of business organisations like sole proprietorship and partnership. These advantages are:

1. Unlimited Capital Mobilisation — Unlike sole proprietorship or partnership, a public company can have unlimited members and raise huge capital by issuing shares and debentures.

2. Limited Liability — The liability of members in a company is limited to the face value of shares held by them.

3. Perpetual Existence — A company enjoys perpetual succession. Its existence is not affected by the death or insolvency of members.

4. Free Transferability of Shares — In a public company, shares are freely transferable on the stock exchange. This provides liquidity to investors.

5. Economies of Large Scale — With huge capital and expert management, companies can undertake large-scale operations, achieving economies of scale.

6. Democratic Management — A company is managed on democratic principles through directors elected by shareholders.These abilities are limited in sole proprietorship and partnership.

Explain the causes for the popularity of company form of business organisation.

Answer

The company form of business organisation has become very popular all over the world for several reasons. The main causes for the popularity of this form are:

1. Huge Capital Requirements — A joint stock company can raise huge capital by issuing shares and debentures to the public. This capital-raising ability is unmatched by any other form of business.

2. Limited Liability — The principle of limited liability is a major attraction for investors.

3. Perpetual Existence — A company is not affected by the death or insolvency of its members.

4. Transferability of Shares — Free transferability of shares makes investment in a company highly liquid.

5. Economies of Scale — Large capital and professional management enable companies to undertake large-scale operations and achieve economies of scale.

6. Democratic Management — A company is managed by directors elected by shareholders. The Companies Act provides several safeguards against mismanagement and oppression.

7. Globalisation and Multinational Operations — The company form allows businesses to expand globally.

Distinguish clearly between a private company and a public company.

Answer

The distinction between a private company and a public company is given in the following table:

Explain in brief the privileges of a private company.

Answer

A private company enjoys several special privileges and exemptions under the Companies Act as compared to a public company. The main privileges of a private company are:

1. Ease of Formation — A private company can be formed by just two persons, whereas a public company requires a minimum of seven members.

2. No Need for Prospectus — A private company need not issue and file a prospectus as it cannot invite the public to subscribe to its shares and debentures.

3. Immediate Commencement of Business — A private company can commence its business immediately after getting the Certificate of Incorporation.

4. No Minimum Subscription — There are no restrictions on the allotment of shares.

5. No Statutory Meeting — A private company is not required to hold a statutory meeting.

6. Lesser Number of Directors — Only a minimum of 2 directors is required, as against 3 for a public company.

7. Lower Paid-up Capital — A private company requires a minimum paid-up capital of one lakh rupees.

8. Quick Decisions — Since the number of members and directors is small, decisions can be taken quickly without elaborate procedures.

What is a multinational company? Explain its features and give examples of multinationals operating in India.

Answer

Meaning of Multinational Company

According to the United Nations Commission on Multinational Corporations (MNCs), "A multinational corporation is a corporation which operates, in addition to the country in which it is incorporated, in one or more other countries."

Features of Multinational Companies

1. Operations in Multiple Countries — A multinational company operates in two or more countries simultaneously.

2. Large Size — Multinational companies are generally very large in size. They have huge capital resources, sophisticated technology and extensive operational scale.

3. International Resource Utilisation — Their purpose is to reduce transport costs and to make use of raw materials, labour, capital and markets of foreign countries.

4. Centralised Control — Although they operate in many countries, the overall control and major decisions are coordinated from a central headquarters located in their country of incorporation.

5. Advanced Technology — Multinationals use advanced and modern technology in their operations. They invest heavily in research and development.

6. Global Brand Image — They have established brand names that are recognised worldwide.

Examples of Multinational Companies Operating in India

• Coca-Cola Corporation
• Hindustan Unilever
• Infosys Technologies Ltd
• Sony

Why would a business owner opt for a Joint Stock Company instead of a sole proprietorship if they want to raise a large amount of capital for expansion?

Answer

A business owner would opt for a Joint Stock Company instead of a sole proprietorship to raise a large amount of capital for expansion due to the following reasons:

A joint stock company is better suited for raising large capital than a sole proprietorship due to the following reasons:

1. Large Capital Mobilisation — A company can raise capital by issuing shares to a large number of people, whereas a sole proprietor depends mainly on personal savings and borrowings.

2. Limited Liability — The liability of shareholders is limited to the value of shares held by them. This encourages more people to invest in the company.

3. Higher Credit Standing — A company enjoys better goodwill and creditworthiness due to its large capital, legal status and professional management.

4. Access to Capital Market — A public company can raise funds from the public through the stock exchange, which is not possible for a sole proprietorship.

5. Large-scale Operations — A company can collect huge funds and undertake large-scale production, leading to economies of scale.

6. Public Confidence — Regular audit, disclosure of accounts and government regulation increase public confidence in the company.

Thus, a joint stock company can raise much larger capital than a sole proprietorship.

Why is perpetual succession considered an advantage for companies engaged in long-term projects like construction or shipbuilding?

Answer For companies engaged in long-term projects like construction or shipbuilding, perpetual succession is considered a major advantage for the following reasons:

1. Long Project Duration — Construction projects and shipbuilding projects often take many years, sometimes even decades, to complete.

2. Continuity of Operations — Even if some shareholders or directors die, become insolvent or leave the company, the operations of the company continue uninterrupted

3. Long-Term Contracts — Construction and shipbuilding companies enter into long-term contracts with clients, suppliers and financiers.

4. Long-term Financing — Banks and financial institutions readily extend long-term loans to a company because of its perpetual existence.

5. Reputation and Goodwill — A long-standing company builds goodwill and reputation over years. This goodwill helps in winning new contracts and retaining clients.

6. Stable Workforce — Skilled workers, engineers and technicians are willing to commit their careers to a company that has perpetual existence.