JOINT STOCK COMPANIES

ACCOUNTS OF JOINT STOCK COMPANIES:
INTRODUCTION:
A joint stock company is type of business organization which is formed under companies ordinance 1984, whose capital is contributed by members who are accorded the privilege of limited liability. This means that they are liable for the debts of the company to the extent of the shareholding that they have contributed. Beyond that sum they are not liable for the company’s debts. The joint stock company is the only practicable way of collecting the vast sum of capital required for the complex industrial projects of the modern world.

CHARACTERISTICS OF A JOINT STOCK COMPANY:

SEPARATE LEGAL ENTITY:
A joint stock company is the creation of law. It has a separate legal entity of its own which is recognized by law as distinct from the persons forming it. The company enjoys many of the rights of natural person. For example, it can use or be used in its name. it can own and transfer the title to property.
FINANCING:
A joint stock company is an effective 'ORGANIZATION' for raising a large amount of capital. It issues prospectus and invites people to purchase the shares of the company. The persons who purchase shares become part owners of the company with liability limited to the value of the shares they have purchased.

PERPETUAL EXISTENCE:
A joint stock company has a long life compared to other forms of business organizations. When company is formed and commences business, it has then a continuous life. The shareholder can withdraw the capital by selling shares in the market. The company can , however, be winded up through compliance with provisions of companies ordinance 1984.

LIMITED LIABILITY:
The liability of each 'SHAREHOLDER' of the company is limited only to the extent of the face value of the shares he holds or any part thereof which is unpaid.

TRANSFERABILITY OF SHARES:
The shareholders of a company have full freedom to transfer their shares to others without consulting other shareholders.

SEPARATION OF OWNERSHIP FROM MANAGEMENT:
The shareholders, who are owners of the company, are large in number. They are scattered all over the country. Being absentee owners, they cannot manage the affairs of the company. The shareholders, therefore, elect board of directors in the annual general meeting and entrust the management of the company to them. The ownership and management of the company are thus in two separate hands.

STATUTORY REGULATIONS:
A company right from its inception, has to comply with a number of statutory requirements. It has also to submit returns and report during its lifetime to the government.

COMMON SEAL:
Since the company is an artificial person created by law, it therefore cannot sign documents for itself. The common seal with the name of the company engraved on it is, therefore, used as a substitute for its signature.

RIGIDITY OF OBJECTS:
In a company from of organization, the object and powers of the company are set out in the memorandum of association of the company. A change in the object and powers of a company can only be made after complying with the relevant provisions of the 'COMPANY' ordinance.

KINDS OF COMPANY:
There are four kinds of companies registered under companies ordinance, 1984.

(1) COMPANY LIMITED BY SHARES:
This is the principle from of company which is registered with the registrar of joint stock 'COMPANIES' under the companies ordinance. In a company limited by shares, the capital is divided into a number of shares. A person who buys one or more then one shares becomes a number of the company. The shares can be freely transferred and sold. The liability of the members is limited to the amount if any, unpaid on the shares held by them. A company limited by shares is further divided in (a) private company and (b) Public company.

(a) Private Limited Company:
According to the companies ordinance 1984 it can be formed (a) at least by two persons and its total membership cannot exceed 50. (b) The company by its articles also restricts the right to transfer its shares. (c) it also prohibits any invitation to the public to invest their money in shares of debentures of the company.

(b) Public Limited Company:
It can be formed by at least seven members and there is no limit to the maximum numbers. The public limited company invites applications from investors through advertisement in the newspapers, giving full details of the objects, share capital, method of applying for the procedure to be adopted for all the allotment of the shares etc.

(2) COMPANY LIMITED BY GUARANTEE. SECTION 15(2) (B)
It is the company in which the liability of its members is limited by the memorandum of association to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. This type of company is formed mostly work is of non-profit making nature.

(3) UNLIMITED COMPANY:
An unlimited company is that in which the liability of its members is unlimited. Every member of the company is personally liable to the full extent of his personal assets for all debts of the company while he was a member. The unlimited companies due to great do not exit here.

(4) ASSOCIATION NOT FOR PROFIT:
Association not for profit is registered under section 42 of the companies ordinance. It enjoys all the privileges of a limited company without using the word limited or private limited. This association is mainly formed for the promotion of commerce, art, religion, charity etc. The Federal Government grants the license for the association.

SHARE CAPITAL OF JOINT STOCK COMPANY
In today’s world large scale operation of a company call for a large amount of capital. The total amount of capital is divided into smaller units. These units are called share. Each share is assigned a value. This value is called the par value of the share. The total capital is this thus divided into a large number of 'SHARE' . This pool is, therefore, called share capital. This scheme of raising capital through shares (i) helps the company from the operations of large scale business concerns.
A has to fulfill certain legal requirements if, in later yeas, it decides to either increase or decrease its share capital. And it has to state its maximum capital in the memorandum. To minimize the chances of undergoing legal formalities in later years, therefore, it is customary to state a reasonable amount as the maximum capital. This amount is incorporated in the memorandum of association and is known as the authorized capital, nominal capital, or registered capital of the company. Various terms used in relation to share capital are explained in the following paragraphs.

AUTHORIZED CAPITAL:
It is the amount of capital with which the company is registered. This capital is mentioned in the memorandum of 'ASSOCIATION'. A mention is also made of the number of shares into which this total capital is divided, and of the par value of shares. In later year, if the company wants to either increase or decrease this capital, certain legal requirements must be met. This capital is also known as nominal capital or registered capital.
ISSUED CAPITAL:
Share offered to the general public for contribution are known as shares issued. The total par value of such shares is called issued capital. To begin with, a company seldom offers all of its shares for subscription. Therefore, the amount of issued capital is generally less then the authorized capital. If a company has an authorized capital of Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each, it may decided of offer 5,000 shares to the general public. In this case the issued capital is said to be Rs. 5,00,000 divided into 5,000 shares of Rs. 100 each. The remainder, that is, the difference between the authorized and issued capital is known as unissued capital.
SUBSCRIBED CAPITAL:
Out of the capital number of shares offered by the company, that number of shares which is taken up by the public is known as shares subscribed. The total par value of shares is called subscribed capital. For example, out of the 5,000 shares issued by the company, if the public takes up 4,500 shares, the subscribed share capital is Rs. 4,50,000.
CALLED-UP CAPITAL:
A company may require payment of the par value either in installments or in one lump sum. This amount is known as the called-up capital.
PAID –UP CAPITAL:
The total amount by the company out of the total called-up amount is known as the paid-up capital. Assuming that of Rs. 3,15,000 called-up capital the company receive Rs. 3,00,000; the paid up capital is in the amount of 3,00,000. The remainder of Rs. 15,000 is known as calls unpaid or calls in arrears. Now-a-days the total par value is collected at the time of application and as such practically there are no calls in arrears. Presently, therefore, called-up-capitals are in the same amount.
Reserve capital:

RESERVE CAPITAL:
It is the portion of the 'SUBSCRIBED CAPITAL' which the company, through a special resolution, reserves to call in the event of window up. Assume that 4,500 shares Rs. 100 are subscribed, the company decided to call Rs. 70 per share and passed a special resolution to the effect that Rs. 30 per share will be called up in the event of window up. The company is said to have reserve capital without leave of the court, and it cannot be dealt with or charged by creditors.

FOR MORE DETAIL: 'ACCOUNTING INTRODUCTIONS AND DEFINITIONS'