Joint-Stock Company
A joint-stock company is a company that is owned by its investors, with each investor holding a percentage of the company based on the amount they have invested. It is the forerunner of the modern-day corporation and other registered businesses in the United States.
Joint-Stock Company Types
1. Chartered Company
Chartered companies are not founded nowadays; they were formed before 1844. A chartered corporation is established by the king or the head of state. Examples include the Bank of England and the East India Company.
2. Statutory Company
A statutory company for public service is established by a national legislature. The rights and obligations of the company are defined by law.
3. Registered Company
A registered company has been legally registered to operate under specific laws and regulations.
Objectives of a Joint-Stock Company
- Profit Maximization: The primary goal is to generate profits for shareholders.
- Capital Mobilization: Raising large amounts of capital through the sale of shares.
- Business Expansion: Expanding operations domestically or internationally.
- Risk Diversification: Reducing financial risk for individual investors.
- Corporate Governance and Accountability: Maintaining transparency and legal compliance.
- Long-Term Sustainability: Ensuring the company’s continued success and growth.
- Shareholder Value Maximization: Enhancing the market value of shares.
- Corporate Social Responsibility (CSR): Contributing positively to society through CSR initiatives.
Characteristics of a Joint-Stock Company
- Separate Legal Entity: The company has its legal personality that is separate from that of its shareholders.
- Limited Liability: Shareholders are only liable for the value of their shares.
- Transferable Shares: Shares can be transferred without consulting other shareholders.
- Perpetual Succession: The company’s existence is not affected by the death or insolvency of shareholders.
- Common Seal: The company has a common seal as its official signature.
- Publication of Financial Statements: The company must publish audited financial statements.
- Separation of Ownership and Control: Shareholders own the company, but a board of directors manages it.
Benefits of Joint-Stock Company
- Large Financial Resources: Ability to raise large amounts of capital through the sale of shares.
- Limited Liability: Shareholders only risk the amount they invest in the company.
- Diffused Risk: Risk is shared among many shareholders.
- Scope for Growth and Expansion: Access to large financial resources allows for growth.
- Stability: Separate legal entity status and perpetual succession offer stability.
- Professional Management: Expert management by the board of directors.
- Public Confidence: Transparency and auditing enhance public trust.
- Good Investment: Potential for growth and limited liability make it a sound investment.
Drawbacks of Joint-Stock Company
- Conflicts of Interest: Conflicts may arise between shareholders and management.
- Delay in Decision-Making: Slow decision-making processes due to large-scale operations.
- Separation of Ownership and Control: Shareholders cannot participate in daily operations.
- Complex Procedure: Establishing a joint-stock company is time-consuming and costly.
- Lack of Secrecy: Mandatory publication of financial reports reduces secrecy.
- Corruption and Fraud: Potential for unethical practices in some companies.
Joint-Stock Company vs. Public Company vs. Private Limited Company
| Feature | Joint-Stock Company | Public Company | Private Limited Company |
|---|---|---|---|
| Ownership | Multiple shareholders | Multiple shareholders | Limited shareholders |
| Shares | Can be transferable | Traded on the stock exchange | Not traded publicly |
| Liability | Limited liability | Limited liability | Limited liability |
| Regulation | Varies | Strict regulations | Less stringent regulations |
| Examples | Umbrella term | Apple, Google, Amazon | Small businesses, family-owned companies |
