Chapter 5-7 J.S.C

Question 1

Define Joint Stock Company

Answer 1

“I is an incorporated association enjoys the advantage of having a large number of members who contribute money to a common pool for running large undertakings. The interest or share of each member can be purchased, sold and transferred without the consent of other members”
(Companies Ordinance 1984)

Question 2

State any five properties of a joint stock company

Answer 2

(i) Separate legal entity
(il) Democratic style
(ili) Long life/durable
iv) Limited liability
(v) Easy transfer of shares

Question 3

State any five advantages of a joint stock company.

Answer 3

(i) Larger capital
(i) Limited liability
ili) Experts services
iv) Long life/durable
(v) Large scale production

Question 4

Write down any five disadvantages of a joint stock company.

Answer 4

(i) Monopoly
il) Late decisions
(i) Difficulty in formation
iv) Lack of secrecy
(v) Double taxation

Question 5

What is meant by the separate legal entity of a company.

Answer 5

Joint stock company is an artificial person and has separate legal entity. In this capacity, the company can sue or enter into agreement with other parties.

Question 6

What is meant by the common seal of a joint stock company.

Answer 6

A joint stock company cannot sign itself. A common seal with the name of the company is used as the substitute of its signature.

Question 7

Explain the organizational structure of a joint stock company.

Answer 7

The management of the company is entrusted to the board of directors elected by the shareholders, Shareholders are not allowed to participate directly in the affairs of management.

Question 8

What is meant by democratic style or set up in a joint stock company.

Answer 8

The company has democratic set up because shareholders of the company elect the directors by using their voting rights to run the business. Moreover, all the business policies are implemented according to the
decision of majority.

Question 9

How does a joint stock company provide different investment opportunities.

Answer 9

The company issues ordinary and preferred shares to those investors who want to share the profit or loss of the business and issues debentures to those investors who want to receive interest at fixed rate.

Question 10

State the number of shareholders in a joint stock

Answer 10

In case of a multi-members private limited company minimum number of members should be two and maximum fifty whilst in a listed public limited company minimum members should be seven but there is no limit on maximum number of members.

Question 11

From where a joint stock company obtains capital for starting business.

Answer 11

A joint stock company mobilizes a large portion of its capital by issuing shares. For this purpose a public company can issue its prospectus to general public whilst private company cannot issue the shares to general public.

Question 12

What is meant
by limited liability of the
shareholders in a joint stock company.

Answer 12

In joint stock company, the liability of the shareholders is limited to the extent of shares purchased by them. It means the private property of shareholders cannot be used for the loss of company.

Question 13

State the definition of a listed public company.

Answer 13

In this company, minimum number of members may be seven but there is no restriction for maximum.
Shares of the company can be easily sold and transferred.
The liability of the shareholders is limited to the value of shares purchased.

Question 14

Define a multi-members private Itd. company.

Answer 14

In this companum is ity, number of members is two and maximum is fifty,
The company uses the word “Private” with its name and cannot sell its shares to public.
• The shares of the company are not transferable.

Question 15

What are the stages involved in the formation of a joint stock company.

Answer 15

Formation of Joint Stock Company
Promotion
Incorporation
Capital Subscription
Stage
Stage
Stage
Certificate of Commencement

Question 16

Define the memorandum of association of a company.

Answer 16

It is a document, which determines the rights, powers and objects of company.

Question 17

Define articles of association of a company.

Answer 17

It is second important document of the company, which includes the rules and regulations necessary to run the company and to govern the internal organization.

Question 18

Define prospectus of a company.

Answer 18

This document is advertised for raising the capital. In this the general public is invited to purchase the shares.
An attested copy of prospectus should be submitted to registrar’s office. It also contains the date of issue.

Question 19

State the kinds of company’s capital.

Answer 19

i) Authorized capital
ii) Issued capital
iii) Subscribed capital
iv) Called up capital
(v)Uncalled capital
(vi) Paid up capital (vii) Unpaid capital
(vili) Advance paid up capital (ix) Unissued capital
(x) Reserve capital

Question 20

Explain the preference shares of a joint stock company.

Answer 20

These are the shares whose holders have preferential rights in respect of the payment of dividend and repayment of capital in the event of winding up.

Question 21

Define cumulative preference shares.

Answer 21

If the profit of company is not enough to pay dividend on any kind of shares then the right of dividend on these shares accumulates until all arrears of unpaid dividend have been paid.

Question 22

Define non-cumulative preference shares.

Answer 22

The holders of these shares are entitled to a fixed rate of dividend out of current year’s profit, but if dividend is not paid on these shares in any year then it is never paid.