A joint stock company is a business entity where the ownership is divided into shares, also known as stocks. These stocks are held by shareholders who have limited liability for the company’s debts and obligations. The company itself is an independent legal entity, separate from its shareholders.
The term “joint stock company” has roots in a medieval trading guild, the “joint stock” being the assets held in common by all members of the guild. This concept was eventually applied to larger business organizations, such as the British East India Company, which was a joint stock company founded in 1600. In India, the Companies Act of 2013 defines a joint stock company as an association of persons to carry on a business to make profits. This definition is similar to the U.S. definition, but with the addition of the requirement for the company to be organized to make a profit.
Did you know that in India, a joint stock company must have at least three directors, and at least seven members (shareholders) if it is a public company, or at least two members if it is a private company.
What is a Joint Stock Company?
Joint stock companies can be public, meaning that the shares can be bought and sold on the open market, or private, meaning that the shares are not traded on the open market. Both public and private joint stock companies may have a board of directors, but the board of directors of a public company is elected by the shareholders and is responsible for managing the company.
What is a Private Joint Stock Company?
A private joint stock company, also referred to as a private limited company, is a type of legal entity that is owned by shareholders. It is a form of business organization that is widely used in many countries. In a private joint stock company, the liability of the shareholders is limited to the amount of capital they have contributed to the company. This means that the shareholders are not personally liable for the debts or obligations of the company. Private joint stock companies are typically small to medium-sized businesses that have a limited number of shareholders.
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Features of Private Joint Stock Company
The main feature of a private joint stock company is that the shares of the company cannot be publicly traded or offered for sale to the public. This is an important distinction from a public joint stock company. A private joint stock company (PJSC) is a type of business structure that combines elements of both a corporation and a partnership. Some of the key features of a PJSC include:
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Limited liability:
The shareholders of a PJSC have limited liability for the company's debts, meaning that their personal assets are not at risk if the company goes bankrupt or is sued.
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Separation of ownership and management:
In a PJSC, the shareholders own the company, but they do not manage it. Instead, the company is managed by a board of directors and executive officers who are responsible for making business decisions and running the company.
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Transferable ownership:
Shares in a PJSC are freely transferable, meaning that shareholders can sell their shares to other individuals or companies.
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Minimum number of shareholders:
A PJSC must have at least five shareholders, who can be individuals or legal entities.
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Public disclosure:
A PJSC is required to publicly disclose financial information such as its annual report and financial statements.
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How is a Private Joint Stock Company Formed?
The formation of a private joint stock company begins with the registration of the company with the relevant government authority. This typically involves the submission of documents such as the proposed company name, the articles of association, and the memorandum of association. The articles of association contain the rules and regulations that govern the internal operations of the company. It also outlines the rights and obligations of the shareholders. The memorandum of association outlines the company’s purpose, the capital structure, and the transferability of shares. Once the company has been registered, the company can begin operating and trading.
Benefits of Private Joint Stock Company
- One of the benefits of a private joint stock company is that it is relatively easy to set up and operate.
- It does not require the same degree of disclosure and regulation as a public joint stock company.
- It also does not require large amounts of capital to get started. It is, therefore, a good option for small to medium-sized businesses that are just starting.
Features of Public Joint Stock Company
The main feature of a public joint stock company is that the shares of the company can be publicly traded or offered for sale to the public. This is an important distinction from a private joint stock company. Further, the number of shareholders in a public joint stock company can be unlimited. This allows the company to attract greater amounts of capital and investors.
Benefits of Public Joint Stock Company
Public joint stock companies are subjected to greater regulation and disclosure requirements than private joint stock companies.
- They must disclose financial information to the public as well as comply with other regulations.
- One of the benefits of a public joint stock company is that it allows for the easy raising of capital.
- The public can buy shares in the company, providing the company with the funds it needs to operate and expand.
- It also allows for the transfer of ownership interests, which can provide liquidity for the shareholders.
Example of Joint Stock Company
Some examples of well-known public joint stock companies include:
- Apple Inc.
- Amazon.com, Inc.
- Google LLC
- Microsoft Corporation
- Facebook, Inc.
- The Coca-Cola Company
- Procter & Gamble Co.
- Johnson & Johnson
- PepsiCo, Inc.
- Nike, Inc.
These companies are all publicly traded on major stock exchanges and are owned by shareholders who have invested in the company. They are required to disclose financial information such as their annual report and financial statements to the public.
Some examples of private joint stock companies include:
- The Home Depot, Inc.
- The Goldman Sachs Group, Inc.
- CVS Health Corporation
- The Walt Disney Company
- The Berkshire Hathaway Inc.
- Nike, Inc.
- The Procter & Gamble Company
- The Johnson & Johnson
- PepsiCo, Inc.
- The Coca-Cola Company
In India, Tata Motors Limited is an example of a joint stock company. It is a multinational automotive manufacturing company with headquarters in Mumbai, India. It is a part of the Tata group of companies, a conglomerate founded by Jamsetji Tata in the late 19th century. Tata Motors manufactures a range of automobiles including cars, buses, trucks, and vans. It is the largest automobile manufacturer in India and sells its vehicles in over 100 countries.
Features of Joint Stock Company
Private joint stock companies are not required to disclose financial information to the public and their shares are not traded on the stock exchange. There are many features of a joint stock company that are unknown to many. To know about some of its important features read out the points detailed below.
Separate Legal Entity
A joint stock company is a separate legal entity from its members. This means that the company has the same legal rights and obligations as an individual. It can enter into contracts, sue and be sued, and own property. This is important as it provides the company with a separate legal identity from its owners so that they are not personally liable for the company’s debts and obligations.
Limited Liability
The members of a joint stock company have limited liability. This means that they are not personally liable for the company’s debts and obligations. The most they can be liable for is the amount of their capital contribution to the company.
Transferability of Shares
The shares of a joint stock company are freely transferable, subject to certain restrictions. This means that the shareholders can easily sell their shares to another investor. This makes it easier for shareholders to exit the company, and for new investors to enter.
Professional Management
A joint stock company is professionally managed. This means that the company has a board of directors and a CEO who is responsible for managing the company’s affairs. This helps to ensure that the company is managed efficiently, and that the interests of the shareholders are protected.
Raising Capital
A joint stock company can raise capital from a large number of investors. This makes it easier for the company to finance large projects, and expand its operations. It also makes it possible for a company to offer its shares to the public, which can help to increase its value.
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Advantages of Joint Stock Company
A joint stock company is capable of creating enough profit because more than one input is involved for decision making and carrying out the business responsibilities. Also there are many other advantages of a joint stock company let us discuss some here below:-
Limited Liability
One of the major advantages of forming a joint stock company as opposed to a sole proprietorship or partnership is the limited liability protection it offers its shareholders. Limited liability means that the shareholders of a joint stock company are only liable up to the amount of their investment in the company, and not for any of the company’s debts or obligations. This means that shareholders are not personally liable for any debts or obligations that the company incurs. This is a major advantage for shareholders as it shields them from any potential financial losses if the company fails or is unable to pay its debts.
Greater Access to Capital
Another major advantage of a joint stock company is that it has access to a much larger pool of capital than would be available to a sole proprietorship or partnership. Joint stock companies can issue shares of stock to investors, which allows them to raise large amounts of capital quickly. This capital can then be used to finance expansion, research and development, and other activities that require large amounts of capital. This makes joint stock companies particularly attractive to investors, as they can benefit from the potential upside of investing in a company with access to a large pool of capital.
Professional Management
A joint stock company also has the benefit of professional management. When founding a joint stock company, shareholders can appoint a board of directors who are responsible for overseeing the company’s operations. The board of directors is typically made up of experienced professionals who can bring a wealth of knowledge and experience to the company. This allows the company to be run more efficiently and effectively, as the board has the experience and expertise necessary to make the best decisions for the company’s growth and success.
Easier Transferability
Another advantage of a joint stock company is that the shares of stock can be easily transferred. This allows shareholders to easily buy and sell their shares of stock, making it easier for them to cash out their investments when they decide to do so. This is a major advantage for shareholders, as it allows them to quickly and easily convert their investments into cash when they need it, or when they decide to exit their investments in the company.
Easier to Attract Talent
Finally, another advantage of a joint stock company is that it is easier to attract top talent. Joint stock companies can offer stock options to employees, which can be a major incentive for talented individuals to join the company. This can be a major advantage for joint stock companies, as it allows them to attract the best talent in the industry and ensure that they can maximize their potential.
Disadvantages or Challenges of Joint Stock Company
Many times there are many disputes caused in the joint stock companies because more than one person has the ownership of the business. This can create a great challenge which affects the running of the business. This can cause other disadvantages as well, let us read some here below.
Lack of Personal Liability
One of the main disadvantages of organizing a joint stock company is the lack of personal liability. Shareholders are not personally liable for the debts and obligations of the company, thus if the company fails, shareholders will not have to pay the debts of the company out of their pocket. This can result in reckless and irresponsible management by shareholders, who are not accountable for their actions.
Difficult to Control
Another disadvantage of a joint stock company is that it can be difficult to control. Since the company is owned by many different shareholders, each shareholder has a say in the company’s decision-making process. This can lead to disagreements and deadlocks between shareholders, which can hinder the company’s progress and lead to inefficiency.
Expensive to run:
Joint stock companies are required to follow strict reporting and compliance regulations, which can be expensive to comply with. Forming a joint stock company can be a costly process. Numerous legal and financial requirements must be fulfilled before the company can be formed, and the cost of setting up the necessary documents and infrastructure can be considerable. Additionally, the company must be registered with the government, which can involve additional costs.
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Limited Access to Capital
A joint stock company can have difficulty accessing capital, as it may not have the same access to public markets as larger public companies. This can make it difficult for the company to expand and invest in new projects, as it may not be able to raise the necessary funds.
Complexity
A joint stock company is a complex business structure and can be difficult to manage and understand. Many different laws and regulations must be adhered to, and the company must comply with the regulations of the government in which it operates. Additionally, the company must follow the regulations of the stock exchange on which its shares are listed, which can add to the complexity of the company.
Conclusion
In conclusion, a joint stock company is a business entity in which ownership is divided into shares that are held by shareholders. Joint stock companies can be either privately owned or publicly traded, and they can have an unlimited number of shareholders. One of the main advantages of a joint stock company is limited liability for shareholders, meaning that their personal assets are protected in the event that the company goes bankrupt. However, joint stock companies can be complex and expensive to set up and run, and decision-making can be slow due to the need for consensus among shareholders.
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