Joint Stock Company – Definition, Features and Types

Published by: Madhubala Minda

A Joint Stock Company refers to a type of business organization owned jointly by all the shareholders. Such companies have specific company stock owned jointly by all the stakeholders which are called shares

All the Joint Stock Company shares can be transferred. If it is a public company then the shares are marketed on registered stock exchanges but the private joint-stock company shares are transferable from one party to another although the transfer is restricted by family members and agreement. The ownership of the share rests with the shareholder under who’s the name the shares are bought

Definition – A Joint Stock Company is a company or association consisting of individuals organized to conduct a business for gain and having a joint stock of capital represented by shares owned individually by the members and transferable without the consent of the group

Understanding Joint Stock Company

Unless a company is incorporated, the company’s shareholders have to face unlimited liability for company debts. In the United States, the legal process of incorporation minimizes the liability to the value of stock owned by a shareholder. Even in Great Britain, the term “limited” is treated similarly and the liability of a shareholder is limited

The formation of a legal entity like the Joint Stock Company can be dated back to the 13th century. By the 16th century, they were backed by adventurous investors who were ready to fund the voyages, invest money for certain rights and gain ownership. The objective was to pay for the voyage which would reach a new market so that ultimately every person could earn a good profit.

It was the Joint Stock Companies that financed several European expeditions like the one to the Americas. Their continued existence saved the governments the necessity to bear enormous costs associated with the ventures.

With time the entrepreneurs devised a business plan that would help to sell shares in their ventures to investors who were treated as partial owners. The share capital was used to fund voyages to the New World. The possibility of trade and resources attracted many investors who were ready to become willing shareholders

The Virginia Company of London is one of the famous and oldest Joint Stock Companies which was given a royal charter signed by King James 1 in 1606. The permit gave exclusive rights to the Virginia Company for establishing a colony. The business entity grew tobacco to export it to the market of choice and benefit from the transactions

Features of Joint Stock Company

Features of Joint Stock Company

1. Separate Legal Entity

A Joint Stock Company is a separate legal entity that can own assets, sue and be sued. The members are not liable to the company like the partners in the partnership firm and sole proprietors in the sole proprietorship business

2. Perpetual Succession

A change in the member does not have any impact on the life of a Joint Stock Company as It can only be dissolved by the functioning of law

3. Number of Members

A public limited company can have unlimited members although the minimum number is 7. For a private limited company, the number is 2 and for a partnership firm in the banking business, the number is 10 and non-banking is 20. A person must have at least one share to become a partial owner

4. Limited Liability

The shareholders have limited liabilities. Members cannot liquidate their personal assets to pay the debts of the firm

5. Transferable Shares

The Public Joint Stock Company shares are marketed on registered stock exchanges but it is easy to transfer the shares of private companies

6. Incorporation

The Joint Stock Companies have to be incorporated and registered to be accepted as individual legal entities

Types of Joint Stock Company

1. Chartered Company

The Chartered Company refers to a firm that is incorporated by the king or the head of a state

2. Statutory Company

The Statutory Company refers to a firm that is formed by a particular act of parliament that defines the right, object, power and responsibility of owners/shareholders

3. Registered Company

The Registered Company refers to a firm that is formed by registering under the law of the company

Legal Documents required for a Joint Stock Company

The Joint Stock Company requires the following documents for legal existence

  1. Article of Association
  2. Memorandum of Association
  3. Prospectus

Advantages of a Joint Stock Company

Advantages of a Joint Stock Company

  1. Shareholders and directors have limited liabilities. As the personal wealth and property is safe the shareholder can finance money without losing personal assets
  2. Shares can be sold and converted to cash for profit. It is easy to transfer the shares of the private sector
  3. Assured of perpetual succession as liquidation is possible under the Companies Act
  4. Have large resources that allow hiring the best talent

Disadvantages of a Joint Stock Company

  1. The process of formation is complex and lengthy
  2. Has to follow rules, regulations, laws and notifications in day-to-day functioning
  3. The Companies Act 2013 requires all public companies to provide their financial records and related documents to the registrar. The public can access them anytime.
  4. There is often a conflict of interest between the various members of a Joint Stock Company like the employees, board of directors, promoters, shareholders and debenture holders

Examples of Joint Stock Company

  1. Indian Oil Corporation Ltd
  2. Reliance Industries Ltd
  3. The State Bank of India

Joint Stock Company Versus Public Company

A Joint Stock Company has several similarities with a public company and a corporation except for the association with unlimited liability

A modern corporation is a Joint Stock Company that is incorporated to limit shareholder liability. All the countries have specific laws regarding a Joint Stock Company to limit it

Joint Stock Company and Limited Liability Company

Corporate Law makes Joint Stock Companies synonymous with Limited Liability Companies. These are private companies with pass-through taxation partnerships and all the benefits of a corporation.

The LLC is flexible and hybrid. The company’s shareholders have a liability that is equivalent to the number of shares they own. Thus, it fits with the idea of a Joint Stock Company where the shareholders own shares and are liable for the percentage of shares they hold in the company

Conclusion

For large-scale business activities, the most suitable business structure is that of a Joint Stock Company which is owned by its investors. These entities are created to finance companies that are very expensive for a person and even a government agency single-handedly.

It is a fact that some of the largest modern corporations in the world are Joint Stock Companies and not partnerships or sole proprietorships.

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Madhubala Minda

Madhubala Minda is a content writer for Digiaide. She writes unique and research-driven content on various Brands, Competitors, Management topics and wellness. With years of content writing under her belt, Madhu Bala is one of the strengthening pillars of Digiaide content team.