Joint Stock Company: Meaning, Features and Advantages

Joint Stock Company: Meaning, Features and Advantages

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on May 9, 2024 17:33 IST

A joint stock company is a business entity where ownership is divided into shares, allowing multiple investors to own a part of the company. This structure enables shared financial risk and facilitates capital accumulation for larger-scale ventures.

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The joint stock company is typically established to help a business grow. The company could not fund itself if only a few shareholders engaged. However, by working together, the individuals can create a successful firm, with each shareholder anticipating financial gain from the company’s success. Each participant shares and receives a share of the profit in this way.

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Table of Content

What is a Joint Stock Company?

A joint stock company is managed by its shareholders, who hold a share that may be freely transferred and are subject to limited liability. It has a separate legal entity with its own name created by law. Due to their low cost, joint stock companies were established to assist in the growth of businesses. Joint stock companies must distribute profits to shareholders in proportion to their shares, unlike other business structures (such as sole proprietorships or partnerships). Other names for joint stock companies are corporations, public businesses, and limited companies.

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Types of Joint Stock Company

1. Chartered Company

Chartered Companies used to be created before 1844; they are not created today. An organization incorporated by the king or another head of state is a chartered company. These corporations are typically found in monarchy-ruled nations; historically, chartered companies held special rights and benefits because they were established with the aid of a king’s authority. The Bank of England, East India Company, and British South Africa Company are examples of Chartered Companies.

2. Statutory Company

A particular act of the legislature establishes these companies, a prime minister’s order, or the general president. The law specifies such an entity’s authority, duties, and responsibilities. These businesses exist to conduct some important national business.

3. Registered Business

The Corporations Act governs the creation and regulations of companies incorporated under the Companies Act.

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Features of Joint Stock Company

Separate Legal Entity

The legal identities of a business and its members are distinct, in contrast to a proprietorship or partnership. After incorporation, the company acquires its own legal identity. Therefore, a corporation’s member is not responsible for the firm. Similarly, none of the company’s members will be relied upon for business operations.

Limited liability

One of a joint stock company's most appealing qualities is its limited liability. The share price is the sole limit on the liabilities of the stockholders. For instance, if a business experiences a loss and cannot pay its creditors, shareholders will only contribute the value of their shares.

Incorporation

A company must be established to be regarded as a distinct legal entity and considered to exist. There is no way around registering a joint stock company. A firm doesn’t exist without incorporation.

Perpetual Succession

A Joint Stock Company does not rely on any of its members, unlike a proprietorship business, which depends only on its single owner. Many changes take place throughout the lifetime of the company. It includes the arrival and departure of members, the purchase and sale of shares, dividends earned and paid, etc. Its status as a separate legal entity is closely related to this concept.

Number of Members

Specific laws govern the number of members that a corporation may have. The minimum number of members in a public company is seven, and the maximum number is unlimited. Two or more members are required to incorporate a private limited company. The same limitations apply to partnerships; a partnership firm may not have more than ten active participants.

Transferable Shares

Every stockholder has the option of trading their shares with other prospective investors.

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Advantages of Joint Stock Company

Public Confidence

It is made by law and administered by legal authorities, so there is no room for deception or fraud. Financial statements are released every year, and its accounts are audited by auditors, encouraging public trust in the firm’s operations.

Good Investment

Investing in Joint Stock Companies can be a great way to grow funds since the government supervises them. Additionally, these shares have a low risk because professional managers apply their expertise and skills. 

Economies of Scale

The company’s extensive operations would lead to economies of scale in various areas, including purchasing, management, distribution, and selling. Consumers could buy items at lower prices thanks to these economies.

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Conclusion

The majority of large companies that we hear about in the news or see on television are joint stock companies. Partnerships and single proprietorships cannot compete with a Joint-Stock Company’s global dominance. All large-scale organizations operate based on this approach.

FAQs

What is a joint stock company?

A joint stock company is a legal entity where ownership is divided into shares, allowing investors to own a portion of the company's capital. It's a form of business organization that facilitates investment and risk-sharing.

How does a joint stock company raise capital?

Joint stock companies raise capital by issuing shares to investors. Investors purchase these shares, providing the company with funds for its operations, expansion, and projects.

What is the liability of shareholders in a joint stock company?

Shareholders in a joint stock company have limited liability, meaning their responsibility for the company's debts is limited to the value of their shares. Their personal assets are generally protected beyond this investment.

How is a joint stock company managed?

A joint stock company is managed by its board of directors, elected by shareholders. The board makes strategic decisions, while day-to-day operations are overseen by the company's executive management.

What are the advantages of a joint stock company?

Joint stock companies offer advantages like easy transfer of ownership through share trading, access to larger capital pools, shared risk, and the potential for growth due to increased capital infusion.

What are the disadvantages of a joint stock company?

Disadvantages include complex regulatory requirements, potential conflicts among shareholders, and the challenge of maintaining effective communication in large-scale operations.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio