A joint stock company is a unique business form where several individuals contribute capital by buying shares and thus become partial company owners. Such a business entity enables the raising of substantial amounts of capital, which helps expand operations and increases profitability. The advantages of joint stock company are that shareholders have limited liability, shares can easily be transferred, and access to a large pool of capital. Professional management also makes the company efficient and increases growth. These reasons make joint stock companies attractive for individual investors and large institutions looking to invest their money wisely.
What is Joint Stock Company?
A joint stock company is an organisation where ownership is divided into shares, which investors can buy and sell. Every shareholder owns a part of the company in proportion to the number of shares he or she holds. The nature of the company allows for collective ownership; that is, the company is owned by many people rather than one person or a small group. A joint stock company has a separate legal identity from its owners. It can enter into contracts, own property, and sue or be sued in its name. This means that the separation of ownership and management enables the company to continue its operations due to changes made in ownership. There are two categories of joint stock companies: public and private. Public joint stock companies issue their shares in the stock exchange to the public, whereas private joint stock companies sell and reserve the ownership of shares to a few people close or related to the owners.
Joint Stock Company Examples
Joint stock companies are common across various industries and have become one of the best-known names on the global business map. Such companies illustrate different joint stock company model applications and testify to its applicability in different spheres.
| Company Name | Type | Industry |
| Apple Inc. | Public | Technology |
| Tata Motors | Public | Automotive |
| Reliance Industries | Public | Energy |
| Infosys | Public | IT Services |
| Cargill | Private | Food Production |
Advantages and Disadvantages of Joint Stock Company
Several advantages of joint stock companies make them appealing to investors and entrepreneurs. On the other hand, each business structure also has some negative sides. To make proper decisions, one must understand the benefits and drawbacks of the joint stock company.
Advantages of Joint Stock Company
Joint stock companies have benefits, which is why they are found among investors and business people. Such benefits help businesses grow, attract investments, and operate efficiently.
Shareholders’ liability
The most important feature of a joint stock company is limited liability. Shareholders’ liability is not more than their investment in shares. If a company incurs losses or litigation issues, a shareholder’s assets are protected. This provides a sense of security and protection for those investing in a company, attracting more people to invest in that company.
Large Capital
The capital that joint stock companies raise can be large due to the issuing of shares to a high number of investors. This allows the company to mobilize huge sums of money to fund big projects and new technologies and expand its operations. This way, access to big capital enables the company to compete in the market and gain long-term growth.
Easy Transfer of Share
Shareowners can easily and freely buy and sell shares on a stock exchange, and the whole process is rather flexible and highly liquid for shareholders. Such freedom in transferring equity makes joint-stock companies a fascinating investment vehicle to many investors as they can enter and leave the investment swiftly without disrupting firm operations.
Perpetual Succession
A company operating on the joint stock has perpetuity succession and goes on no matter who replaces or sells what dies, withers and moves away. It continues functioning, remains stable, and develops well enough to be considered a fine investment.
Professional Management
Joint stock companies hire professional managers with extensive experience and expertise in business management. Professional management helps the company to make proper decisions and efficiently conduct the business. Professional management also ensures that the company adopts best practices and stays competitive.
Public Confidence
Public joint stock companies must follow strict regulatory requirements and regularly disclose financial information. This transparency generates confidence among the investors, customers, and other stakeholders. People are more likely to invest in the shares and support the company’s growth when confident about its operations.
Wide Choices
A joint stock company with access to significant capital can open new markets and develop new products. Global operations expansion, with minimal reliance on any particular product or market, increases the stability and profitability of the overall company.
Economies of Scale
This is one advantage that joint stock companies will enjoy due to the increase in size. This happens when more and more goods and services are produced due to increasing size. This way, the cost per unit is reduced. Efficiency rises, and profit increases. Economies of scale also help companies gain competitive prices, attracting more and increasing market share.
Disadvantages of Joint Stock Company
While joint stock companies offer many pros, they face challenges and drawbacks. Understanding the disadvantages of the joint stock company helps evaluate whether this business structure is the right choice.
Complex Formation Process
The process of forming a joint stock company is long and cumbersome. Drafting a memorandum of association, registering with the government, and obtaining the required approvals must be completed. Such a process may take time and cost much money, discouraging people from adopting this business.
Lack of Secrecy
Public joint stock companies are supposed to make public information regarding the finances and other company business affairs. This may work in favor of the investors; however, keeping some sensitive information secret for the company becomes a problem because competitors can use that information and win over the game.
Management Issues
A joint stock company separates ownership and management. The owners are shareholders. Professional managers handle the daily operations. Separating ownership and management can lead to conflicts of interest, where managers prioritize their personal goals over what would best be in the company’s interests.
High Taxes and Regulations
Joint stock companies have stricter regulatory requirements and pay higher taxes than other business structures. Complying with such regulations is expensive and requires more resources. High taxes lower the company’s profitability and reduce its capacity to invest in growth.
Features of Joint Stock Company
The specific features of joint stock companies distinguish them from other types of business. Most company features define how the company operates and is perceived by the shareholders, regulators, and the market. People interested in investing in or starting a joint stock company must know the features.
Limited liability
The shareholders have limited liability, meaning they incur liabilities up to the value they invested in shares. If the company incurs losses or liabilities through court cases, its assets are unaffected.
Separate Legal Entity
A joint stock company is considered a separate legal entity from its owners. This means the company can own property, enter contracts, and sue or be sued in its name. Shareholders are not personally liable for the company’s debts and obligations.
Perpetual Succession
Change of ownership does not affect the existence of the company. The company will continue running smoothly even if the shareholders sell their shares or die.
Common Seal
A common seal executes the official signing of legal documents of a joint stock company. This common seal expresses the approval and mandate of the company.
Large Membership
Joint stock companies can have many shareholders, spreading ownership and reducing individual risk. Public companies can have thousands of shareholders, while private companies limit the number to a smaller group.
Formation of Joint Stock Company
The formation of a joint stock company requires several critical steps. Every step ensures that the company is recognized legally and operates within the bounds of the law. This is helpful to the entrepreneur because they can find their way in this complex structure. Here is a table indicating the key steps of forming a joint stock company:
| Step | Description |
| Promotion | This is the first step, where promoters identify business opportunities, gather initial capital, and plan the company’s formation. |
| Incorporation | In this step, the company is registered with legal authorities by submitting documents like the memorandum and articles of association. |
| Capital Subscription | The company invites people to subscribe to its shares. |
| Commencement of Business | After fulfilling all legal requirements and raising sufficient capital, the company receives a certificate to commence business. This allows the company to start its operations officially. |
Advantages of Joint Stock Company FAQs
What are the advantages of Joint Stock Company?
The prime benefits of joint stock company include limited liability to the shareholders, easy transferability of shares, raising large capital, professional management, perpetual succession.
What are the disadvantages of joint stock company?
The disadvantages of a joint stock company include a complex formation process, lack of business secrecy, potential management conflicts, high taxes, strict regulations, and the risk of hostile takeovers.
Can you give me an joint stock company example?
Apple Inc., Tata Motors, Reliance Industries, Infosys, and Cargill are all examples of joint stock companies.
What is the term perpetual succession?
Perpetual succession in a joint stock company means that this company remains existent despite any change of the shareholders as long as those occur through sale, death, or withdrawal.
How is a joint stock company formed?
A joint stock company is formed through a series of steps, including promotion, incorporation, capital subscription, and commencement of business.
