Updated July 10, 2023
Introduction to Joint Stock Company
The Joint Stock Company is an incorporated company by law owned by its shareholders who have invested the money in the company. It is formed as a Joint-stock company to get more finance for the company when an individual or Government cannot fund the company completely.
Unless the company is incorporated by law, it is implied to have unlimited liability where the company’s liability can extend to its owners.
Features of Joint Stock Company
- Registered companies have their legal existence, and it is separate from that of their owners. So, it has the status of a separate legal entity.
- It is an Artificial legal person created by law, and it can enter into any contract, borrow or lend money in its name.
- A Company can be recognized as a joint-stock company only if registered and incorporated by the country’s laws. If not incorporated, the company does not exist.
- The liability of the Joint-stock company is always limited; the liability cannot be extended to the company’s shareholders. Therefore, the company’s assets and liabilities differ from its owners.
- It has perpetual succession, so the company’s existence does not relate to its shareholders’ life. Members and shareholders may keep changing, but the company continues to exist.
- The shareholders’ ownership is the defined basis of the number of shares held by the individual shareholders.
- The shares of the Joint Stock Company are transferrable. If the company is listed on the stock exchange, the shares will be trading, and the shareholders can easily transact on the shares. If the company is registered as a private limited company, the shares can be transferred between people with some bounded agreement and regulations.
- It is a separate legal entity whose operations are monitored and controlled by the Board of Directors. So, if the company enters into any contract or signs any agreement, it uses the company’s common seal, which carries the name of the company. Any legal document is binding on the company only if it has its directors’ common seal and signature.
How Does a Joint Stock Company Work?
A joint-stock company is a business entity that its investors own. Anyone can invest in the company’s shares and become a shareholder as the shares are publicly transacted on stock exchanges. The Shareholders have specific rights basis their shareholding, and they are entitled to the company’s benefits in the form of dividends and an increase in stock price.
Example of Joint Stock Company
Some Joint-stock Companies in the US are:
- Apple
- Microsoft
- Amazon
- Alphabet (Google), etc.
Types of Joint Stock Company
Types are as follows:
- Registered Company: This is the most common type. Any company registered under the Companies Act/law of the respective country will qualify as a Joint-stock company.
- Statutory Company: Any company formed under the statutory laws/specific Act of the country is called a Statutory Company. A statutory company has its objectives and responsibilities, which will be clearly stated in the Act.
- Chartered Company: A company formed by the ruler or head of the state under his powers is called a Chartered Company.
Legal Documents Required for Joint Stock Company
The following are the legal documents required:
- Articles of Association
- Memorandum of Association
- Prospectus
Advantages
- Listed company shares are traded on the stock exchange, allowing investors with limited funding to be part of the company’s ownership. So, they can sell the shares in the market any day and convert them into cash.
- Though the company’s ownership is by multiple shareholders, the company is managed by the board of directors and other managerial personnel on behalf of the shareholders. The shareholders vote and elect them at the Annual General Meeting.
- A joint-stock company has its legal existence, so the company’s debts cannot be extended to the shareholders’ assets. Instead, the company’s liability is limited only to the unpaid amount on their shares.
- The assets and structure of the company continue to exist beyond the life period of its shareholders. Therefore, the company will have a perpetual lifetime until the same is dissolved and the assets are distributed.
Disadvantages
- The formation and incorporation of this company is a complex and time-consuming process. It also involves a lot of cost due to the procedures involved in formation.
- Incorporated companies need to submit their audited annual accounts and other related documents to the registrar of companies. These documents are available on the public platform, and anyone can access the data. This process leads to confidential data going out to the public.
- Incorporated companies must follow many rules and regulations for their day-to-day business operations. All of it is a time-consuming process and restricts the free will of the company.
- The company has many stakeholders like shareholders, promoters, directors, employees, creditors, debtors, etc. All stakeholders are more interested in their rights and benefits, which may sometimes lead to a conflict of interest and disagreement.
Conclusion
A Joint Stock Company is a business formed and owned by multiple Investors. The shareholders can buy and sell the shares, and their ownership is defined by the number of shares they hold. The prime reason to form the company as a joint-stock company is to enable the company to receive more funds from the investors, which helps in business expansion. The company continues to exist beyond the lifetime of its shareholders due to its perpetual succession feature.
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