A joint stock company is an organization of business where more than one person contributes capital and owns the company by purchasing shares. The shares represent ownership and can be transferred freely, depending on the type of company. A joint stock company is a separate legal entity, meaning it exists independently of its owners and can own property, enter contracts, and sue or be sued. This structure allows companies to raise a substantial amount of capital from the public and operate on a large scale.
What is Joint stock Company?
A joint stock company is a business organization under which ownership is in the form of shares. Owners are called shareholders and own it jointly as a whole; the company may operate as an independent legal body to enter contracts, own and manage assets independently, and conduct lawsuits.
A joint stock company is helpful for an enterprise that needs a high level of capital. Since it can issue shares to the public, it enables the enterprise to raise a considerable amount of funds. The management of a joint stock company is usually vested in a board of directors responsible for crucial decisions in business. There is a share of profit in the form of dividends to a shareholder. The shareholders, however, are not involved in the day-to-day running of the company.
Types of Joint Stock Company
A joint stock company ensures financial stability, offers opportunities for businesses to expand, and gives opportunities to people to invest. It has been playing an essential role in the modern economy, where a huge scale of operations is performed.
- Public Joint Stock Company: Shares are quoted in the stock exchanges. It can be sold and bought by anybody.
- Private Joint Stock Company: Shares are issued to a limited few, and not everyone can access the company shares.
Features of Joint Stock Company
There are many characteristics associated with a joint stock company. Some of them ensure easy operations while offering a wide range of advantages to shareholders. Here are the following:
- Separate Legal Entity: A joint stock company is considered a separate legal entity from its owners. It can enter contracts, own property, and take legal action in its own name. This means the company is responsible for its debts and obligations, not the shareholders.
- Perpetual Succession: It survives even after the change in its shareholders. The death, resignation, or bankruptcy of a shareholder does not affect the running of the business. This gives it an edge as a mode of business organization for long-term ventures.
- Limited Liability: Shareholders in a joint stock company are only liable for their contribution to the shares. Their assets are safe in case of losses registered in the company’s books.
- Transferability of Shares: In a joint stock company, it is very easy to sell and buy shares, especially in a public company. Entry and exit will not be affected, but they will come and go freely as this will not disturb the running of the business.
- High Capital Fund: A joint stock company can raise a large amount of capital by issuing shares to the public. It enables businesses to increase their investment and enter new business ventures.
- Expert Management: As ownership and management are separated, professional managers run the business. This leads to proper decision-making and long-term business development.
Examples Of Joint Stock Company
The company must register with the concerned authority, submit its reports, and be transparent.
There are various joint stock companies diversified in numerous industries throughout the world. Due to such big businesses, many investors venture with this business model so that they can invest and reap growth.
- Reliance Industries: Reliance Industries is considered to be a leading joint stock company in India. It obtains capital by selling shares to the public. Such shareholders who purchase shares receive dividend amounts based on the profit the company generates.
- Tata Steel: Tata Steel is another name for a very famous joint stock company in India. The global world operates it, and a board of directors manages it while the shares are listed on the stock exchanges.
- Amazon: Amazon is one of the giants in the global e-commerce space, and it works as a joint stock company. Amazon shares are traded on the stock exchange, and it is owned partly by investors worldwide.
Advantages and Disadvantages of Joint Stock Company
A joint stock company possesses several advantages and disadvantages. Though it provides financial stability and business continuity, it is considerably legal, complicated and taxable.
Advantages of Joint Stock Company
Some advantages of the joint stock company are: perpetual succession and professional management. However, at the same time, there are also some challenges, such as legal formalities and lack of personal control by the shareholders.
- Massive Capital: A joint stock company can raise substantial amounts of funds by issuing shares to the public. It can, therefore, undertake large-scale business operations and expansion.
- Limited Liability: Shareholders are liable only for their capital. Their assets are safe, which is an added attraction for investors.
- Professional Management: A joint stock company is managed by experienced professionals and experts. This ensures better decision-making and efficient operations.
- Perpetual Succession: A joint stock company survives even when shareholders change. This gives stability and long-term growth of the business.
- Transferability of Shares: Investors can buy and sell shares with ease and exit the business whenever required. This makes it a very preferred investment.
Disadvantages of Joint Stock Company
A joint stock company is heavy with legal requirements and thus time-consuming and costlier to start. Shareholders do not run the business daily, as its management is under someone else’s control. Therefore, it lacks personal control over decisions.
- Double Taxation: Companies pay corporate tax on their profit, and dividends are taxed from shareholders’ accounts, which creates double taxation.
- Risk of Fraud: Large companies might lack transparency, which may lead to fraud and poor financial management.
Difference Between Partnership and Joint Stock Company
A joint stock company and a partnership firm are two different business forms, although both have more than one owner. However, their legal status, liability, and how the business operations are managed are different.
| Feature | Joint Stock Company | Partnership Firm |
| Legal Status | Separate legal entity | No separate legal entity |
| Liability | Limited liability | Unlimited liability |
| Ownership | Shareholders own shares | Partners own the business |
| Management | Managed by directors | Managed by partners |
| Capital | Raised through shares | Contributed by partners |
| Transfer of Ownership | Shares can be sold easily | Partnership interest cannot be transferred freely |
| Continuity | Perpetual succession | Ends if a partner leaves |
Joint Stock Company FAQs
What is a joint stock company?
A joint stock company is one in which shares are divided for ownership in the business. Shareholders pool their capital. They get back the profits; however, the daily running is not in their hands.
What are the features of joint stock company?
The key features are limited liability, perpetual succession, separate legal identity, and transferability of shares.
What is an example of a joint stock company?
Examples include Reliance Industries, Tata Steel, Amazon, and Apple Inc.
What are the advantages of a joint stock company?
A joint stock company provides benefits like large capital, professional management, stability, and ease of transferring ownership.
How is a joint stock company different from a partnership firm?
A joint stock company has limited liability and operates independently, whereas a partnership firm has unlimited liability and is managed by partners.
