What is a Joint Stock Company?
- 06 Oct 2024
- By: BlinkX Research Team
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A Joint Stock Company is an organization where the ownership is divided into shares that can be purchased or sold by individual shareholders. The shares are traded on the stock exchanges. Based on the investment, these shareholders receive a percentage of the ownership. This type of corporation is suitable for large-scale projects where one person is unable to afford the entire cost. Limited liability is provided to the shareholders of these companies; this means that their assets are secured in case the company faces any financial difficulty. Keep reading to learn about joint stock company meaning, the features of joint stock company, the types of joint stock company, along with the advantages and disadvantages of joint stock company.
Features of Joint Stock Company
After understanding the joint stock company meaning, let’s discuss the features of a joint stock company:
- Limited Liability: In a joint stock company the shareholders are only liable for the amount of investment that they have made in the company.
- Independent Legal Entity: A joint stock company is legally independent of its shareholders. In simple words, it means it can own property, can file or defend legal actions. The members or shareholders of this company are not answerable to the business.
- Constant Existence: Even if the shareholders or directors change the company will continue to exist. A joint stock company can only be dissolved according to the prescribed legal procedures for due process.
- Common Seal: In a joint stock company, there is an official seal that acts as the signature of the company for all the legal documents.
- Registration: A joint stock company needs to get registered if it wants to build trust among the shareholders. Only after registration, the company will get the status of an independent legal entity.
- Corporate Governance: In a joint stock company, shareholders select a board of directors who manage the company. A board of directors manages the operations and ensures that the company operates proficiently.
Table of Content
- Features of Joint Stock Company
- Types of Joint Stock Company
- Examples of Joint Stock Companies in India
- Advantages and Disadvantages of Joint Stock Company
- Joint Stock Company vs. Public Company
Types of Joint Stock Company
Now that you know what is joint stock company is and its features, let’s understand the different types. Following are the three main types of joint stock companies.
- Chartered Company: A chartered company is one of a type of joint stock company. This type of company is created by a charter that is granted by the head of state, generally a monarch or a governing authority. In historical times, during colonization and trade, many companies were chartered companies. Today, the relevance of chartered companies has declined. Some of the popular examples of such companies are the British East India Company and the Hudson’s Bay Company, which operated under royal charters.
- Statutory Company: Statutory companies are established by special acts that are passed by the parliament of India. The main objective of these companies is to serve the public or national interests, like infrastructure development, utilities, and government enterprises. Examples of statutory companies are: Indian Railways and Life Insurance Corporation of India (LIC)
- Registered Company: The most common and popular type of joint stock company is a registered company. This company is formed by registration under the country's company laws. Registered companies can be private or public, it depends on the nature of their ownership and the ability to offer shares to the public. Examples of registered companies are TCS, Reliance Industries Limited, and Infosys.
Examples of Joint Stock Companies in India
Following are the examples of joint stock companies in India:
- Tata Consultancy Services (TCS)
- Reliance Industries Limited
- Infosys Limited
- Hindustan Unilever Limited (HUL)
- ICICI Bank
- Larsen & Toubro (L&T)
- Bajaj Auto Limited
- Wipro Limited
Advantages and Disadvantages of Joint Stock Company
The following are the advantages and disadvantages of a joint stock company.
Advantages:
- Large Capital Base: By issuing debentures and shares, a joint-stock company can raise its capital. The company can also use these funds for business expansion.
- Liability is Limited: In a joint stock company, the shareholders have limited liability, which makes the company a safe place for them. There won’t be any impact on the shareholder's assets if the company is at a loss.
- Transferability of Shares: The shareholders can easily buy or sell their shares; they have no restrictions from the company.
- Transparent: A joint-stock company publishes its financial reports and other important data for transparency and to build trust among its shareholders.
Disadvantages:
- Complex Structure: To establish a joint stock company, many complicated and legal formalities need to be completed.
- Conflict of Interest: In a joint stock company, there are many shareholders and directors, which can result in a conflict of interest.
- No Confidentiality: There is no confidentiality in a joint stock company as all the financial reports and data must be presented in front of the public.
- Double Taxes: In addition to corporate tax, the companies also have to pay taxes on shareholder dividends.
- Delay in Decisions: In a joint stock company, the decision-making can be slow as it often requires approval from multiple stakeholders and directors.
Joint Stock Company vs. Public Company
Following are the differences between a joint stock company and a public company.
Aspect | Joint Stock | Public Company |
| Availability of shares | The share can be available to both public and private. | It is always public, and the shares are available on stock exchanges. |
| Management | A joint stock company is managed by a board of directors. | A public company is also managed by a board of directors. |
| Ownership | Can be owned by a few individuals or the general public | Owned by the general public through shareholding. |
| Liability | Shareholders have limited liability. | Shareholders have limited liability |
| Transferability | Shares can be transferred freely | Shares are traded freely on stock exchanges. |
| Rules and regulations | Follows the Companies Act and specific regulations. | More stringent regulations and compliance requirements. |
Conclusion
A joint stock company meaning is an entity that allows the ownership to be divided into tradable shares. This form of the company provides great advantages to its shareholders, like limited liability and the capacity to raise significant profits. Many large companies found this structure profitable because of its flexibility and unique governance structure. Joint stock companies also have some drawbacks, like the formation is very complex and there is no confidentiality in a joint stock company. Before investing in a joint stock company, investors should do their research properly using tools like an online trading app to track performance and make informed decisions.
