Joint-stock companies have been around for over 400 years. They have always been at the forefront of global business. Although not all they did was morally right, at least by today’s standards, joint-stock companies are still around now and are the world’s most numerous forms of company.
If you’ve ever wondered, read on to find out how a joint-stock company works? Before going into the core topic, let us inform you that each company requires rjsc registration for the formation.
What is a joint-stock company?
A joint-stock company is a business that its shareholders or investors own. The ownership is represented by the percentage of shares they own. Shareholders can also vote on company decisions.
Joint-stock companies were created to fund projects that would be too expensive for an individual. The owners of a joint-stock company also share its profits.
Joint-stock companies are by far the most numerous types of companies globally, surpassing proprietorships, private limited companies and partnerships.
Joint-Stock Company Versus Public Company
Historically joint-stock companies had a different meaning. Shareholders of a joint-stock company used to be liable for the losses incurred. They could have had their personal property seized to pay off debts if there was a collapse.
However, joint-stock companies have been incorporated to limit the liability of their shareholders. These companies are called corporations, public companies or just plain companies.
Features of a Joint Stock Company
A joint-stock company has multiple features that separate it from other companies. The most significant of these features are:
Artificial Legal Personage
A joint-stock company is created by law, and thus it becomes a legal entity with the attributes of an artificial person. The company must follow all laws, and just like a normal person, they can own properties, sign contracts, borrow money, etcetera.
Separate legal entity
In the case of a joint-stock company, the legal identity of a company is separate from its shareholders. That means the shareholders are not liable for the company and vice versa.
Incorporation is done to recognize the company as a separate legal entity officially. If the company is not incorporated, it means it doesn’t officially exist.
Since joint-stock companies are created by law, they exist by law. Which means they are not limited to the lifetimes of their members. Even after its shareholders die, it can still be passed on to others and continue to exist.
A major differentiating characteristic of a joint-stock company and a proprietorship is the liability of shareholders. The shareholder’s liability is only limited to the amount of unpaid share capital they have. A member cannot be forced to sell their personal property to pay off the debts of a company.
Since the company is an artificial person who cannot make its signatures on contracts and agreements, it is done by its board of directors using a common seal. It is an engraved seal with its name and logo on it.
Therefore, no contract is binding unless it has the common seal and signs from the board of directors.
Transferability of shares
Shares in a joint-stock company can be transferred freely, although there are a few restrictions. Transfers of shares cannot be stopped.
How does a joint-stock company work?
The profits and losses of a joint-stock company are shared among shareholders in the same proportion as the shares they hold. Previously joint-stock companies used to have unlimited liability for their owners.
After introducing incorporation, a joint-stock company can limit its shareholders’ liability to only the amount of shares they own. Shareholders can buy, sell and transfer their shares using public exchanges.
The founder of a company is now absolved of the need to find huge amounts of funding to start their business. Investors can now finance a company’s development by buying shares, which means they become part owners of the company.
This means a company is owned by its shareholders and not by its founder.
Advantages of a joint-stock company
The biggest advantages joint-stock companies offer are as follows:
- Limited shareholder liability.
- Transferrable shares.
- Perpetual succession.
- Properly managed by a board of directors.
- Enough resources to hire the best professionals.
Disadvantages of a joint-stock company
The biggest disadvantages joint-stock companies face are as follows:
- Joint-stock companies take a long time and many resources to form.
- Public companies need to be transparent with their financial records
- They have to follow strict rules and regulations
- Diverse stakeholders can lead to a conflict of interest
Joint-stock companies paved the way for the modern company and are today the most common form of the company globally. It offers great benefits for its shareholders while shielding them from any liability.
Historically founders of a company could not take on risky or grand endeavours as they lacked funding. Still, due to the advent of the joint-stock company, founders can now fund their projects, and investors can benefit as well.
Joint-stock companies led to a golden generation in business and brought about massive leaps in technology, innovation, and development worldwide.