Joint Stock Company: Meaning, Features and Advantages

A Joint Stock Company is a business entity where ownership is divided into transferable shares held by shareholders. It operates as a separate legal entity, offering limited liability to its members, and is managed by a board of directors elected by shareholders. Here, we will cover the meaning, examples and features of Joint Stock Company. 

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 Joint Stock Company?
• Types of Joint Stock Company
• Examples of Joint Stock Company
• Features of Joint Stock Company
• Advantages of Joint Stock Company
• Disadvantages of Joint Stock Company

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; its name was 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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Joint Stock Company Examples

Joint stock companies in India are key contributors to the economy, characterized by shared ownership and limited liability. These companies are publicly or privately held and operate across various industries. Here are the joint Stock Companies examples:

• Reliance Industries Limited
• Tata Consultancy Services (TCS)
• Infosys Limited
• Hindustan Unilever Limited (HUL)
• State Bank of India (SBI)

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 company's lifetime. These include the arrival and departure of members, the purchase and sale of shares, dividends earned and paid, etc. The company's 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.

Advantages of Joint Stock Company

• Limited Liability: Shareholders are only liable for the company's debts to the extent of their shareholding, protecting personal assets.
• Large Capital: Ability to pool substantial funds by issuing shares to the public, enabling large-scale operations.
• Perpetual Succession: The company’s existence is not affected by the death, insolvency, or withdrawal of shareholders, ensuring stability.
• Transferability of Shares: Shareholders can freely transfer their shares, providing liquidity and ease of exit.
• Professional Management: Managed by qualified professionals, leading to efficient operations and strategic decision-making.
• Economies of Scale: Large-scale production and operations reduce per-unit costs, increasing profitability.
• Public Confidence: Legal recognition and transparency enhance trust among investors and creditors, facilitating more straightforward access to credit.

Disadvantages of Joint Stock Company

• Complex Formation: Establishing a joint stock company requires extensive legal formalities, registrations, and significant costs, making the process time-consuming.
• Regulatory Compliance: Companies must follow strict government regulations, periodic audits, and mandatory disclosures, increasing administrative burdens.
• Lack of Secrecy: Financial and operational details are published, reducing privacy and making sensitive information accessible to competitors.
• Management-Ownership Divide: Shareholders own the company, but professionals manage day-to-day operations, which may lead to conflicting goals or priorities.
• Decision-making Delays: Involvement of multiple stakeholders and bureaucratic processes can slow down critical decisions.

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Conclusion

A joint stock company is a robust business structure ideal for large-scale operations, offering benefits like limited liability, perpetual succession, and access to substantial capital. However, it involves complex formation, regulatory compliance, and potential conflicts between management and shareholders. Despite its challenges, it remains a popular choice for businesses seeking growth and sustainability.