Joint Stock Company

Almost all the major organisations that we read about in newspapers or come across on television are Joint-Stock companies. Neither proprietorships nor partnerships can challenge the dominance of a Joint-Stock Company globally. All large-scale businesses run on this model.

But what is Joint-Stock Company mean? How does the base model enable so many large enterprises to operate? Read on.

Joint-Stock Company Definition

This sort of Company is present throughout the world and is the most standard type of business venture. Even once solely-owned enterprises, like the Walt Disney Corporation or Dunlop Tyres, moved to this model once their sizes started to balloon.

When a group of persons divide the capital of a Company into transferable shares, a Joint-Stock Company is formed. The only way to join this ownership matrix is by purchasing shares.

Note that by its very definition, the ultimate aim of all shareholders, large or small, is profit.

To make it simpler, let us look at a Joint-Stock Company example. One of India’s largest companies, Tata Consultancy Services or TCS, is a Joint-Stock Company as it has numerous shareholders. All these shareholders are co-owners of TCS. 

Shareholders are eligible to vote on Company-related decisions and also to dividends, though certain shareholders are not mandatorily entitled to dividends.

Note for advanced students: Identify how many different types of shares a business entity can release on the market. Also, did you know that a business has to report to the SEBI if a party purchases more than 1% of its shares?

News: It happened very recently when the People’s Bank of China (PBoC) acquired more than 1% of HDFC’s shares.

Examples of Large Joint-Stock Companies in India

Types of a Joint-Stock Company

There are 3 Different Types of Such Entities. They are:

• Registered Company: It is the most typical type. Here, any organisation that is registered under the Companies Act of India is defined as a Joint-Stock Company. 

• Statutory Company: Any entity which is formed under a specific Act of Parliament or any other empowered executive authority is a statutory Company. Such an entity’s tasks, responsibilities, aims, and objectives are mentioned succinctly in this Act.

• Chartered Company: When the head of a state asks for a Company to be incorporated with the powers vested in him, a chartered firm is born. Such entities are commonly found in countries which have a monarchy, like the United Kingdom.

Characteristics of a Joint-Stock Company

Such a business venture has the following features:

1. Entirely Separate Legal Entity: Unlike a partnership or a proprietorship firm, a Joint-Stock Company is separate from its owners. It is a separate legal entity. No single member is liable for such a Company’s activities. Alternately, such a firm will not depend on any owner or shareholder to decide its future course of action.

This point will help you understand the difference between a partnership and a Joint-Stock Company.

2. Is Incorporated: A Joint-Stock firm has to be incorporated. If this due process is not followed, its legal status ceases to exist. Non-incorporation is not an option.

3. Perpetual Succession: Unlike a proprietorship business, which relies solely on its single owner, a Joint-Stock Company does not depend on any member. Members come and go; shares are bought and sold, dividends are earned and distributed; such a Company goes on. This point is directly borne out of its status as a separate entity.

4. Number of Members: Some laws govern how many members a Company can have. Any public limited Company must have at least 7 members – there is no upper bracket. A private limited Company needs to have at least 2 members. Likewise, a partnership firm is not allowed to have more than 10 active partners.

5. Transferable Shares: All shareholders are eligible to trade their shares to other prospective owners. You must remember these points if you are asked to explain the features of a Joint-Stock Company.

Merits of a Joint-Stock Company

Some of the crucial ones are:

1. Liability is Limited – It encourages more people to jump aboard a Joint-Stock entity. 

2. Since the Shares are Transferable – shareholders can quickly sell them at a profit. It is this ease of ownership that props up the Stock exchanges across the world. It is one of the significant features of a Joint-Stock Company. 

3. Such Companies are Run by a Board of Directors – a body constituted of some of the most qualified and educated individuals. They are the enterprises’ navigators. Every year, shareholders vote on BoD membership at an Annual General Meeting (AGM). Hence, such businesses generally do not run into losses.

Tasks: Log on to Vedantu and read up on an AGM and an extraordinary AGM. Find out about companies that have, in the recent past, been forced to call for an extraordinary AGM. 

Trivia: Did you know that Credit Suisse, one of the world’s largest wealth managers and investment banks, is likely to hold an extraordinary AGM in autumn 2020?

Drawbacks of a Joint-Stock Company

The demerits include:

1. A very long gestation period since a lot of regulatory red tape has to be crossed.

2. Such firms have a complete lack of secrecy because their financial records must be provided to registrars under the Companies Act (Amended), 2013.

3. There are latent chances of conflict of interest between a firm’s shareholders, promoters and the BoD.

List of Joint-Stock Companies in India

Some Major Ones Include:

• Tata Motors Limited.

• Reliance Industries Limited, owned by Mukesh D. Ambani, is a premier example of the Joint-Stock Company in India.

• State Bank of India

• Jindal Steel & Power Ltd.

• Grasim Industries Ltd.

• Oil & Natural Gas Ltd. (ONGC)

Many a Joint-Stock Company in India are also part of the Fortune 500 list of blue-chip firms.

To learn more on different models of businesses like a partnership firm and sole proprietorship, you can look up Vedantu’s study materials. You can also download these materials in PDF format for offline reading. 

Joint Stock Company

A Joint Stock Company is a Company that's owned by shareholders. Unlike a larger publicly-traded Company, the total capital of the Joint Stock Company is divided into shares; every member of the Company has shares in the business. Members are called shareholders. 

Features of Joint Stock Company

1. Artificial Person: Because it lacks the physical characteristics of a natural person and is constituted by law, a Joint Stock Company is an artificial person. As a result, it is a legal entity distinct from its members.

2. Separate legal Entity: Since a business is a legal entity distinct from its members, a Company has its own legal entity. It can own assets or property entered into contracts, sue or can be sued by anyone in the court of law.Its shareholders are not responsible for the Company's actions.

3. Perpetual Existence: A firm that has been founded continues to exist as long as it meets all of the legal requirements. The death, insolvency, or retirement of its members have no bearing on the organization's existence.

4. Limited liability of shareholders: A Joint Stock firm's shareholders are only liable to the extent of the number of shares they own in the Company. Their liability is restricted by a guarantee or by the Stock they own.

5. Common Seal: A Joint Stock corporation cannot sign any documents because it is an artificial person, hence this common seal serves as the firm's representation when interacting with outsiders. The firm is bound by any document bearing the common seal and signed by an officer.

6. Transferability of Shares: A Joint Stock Company's members have the freedom to sell their shares to anyone they want.

7. Capital: By issuing its shares, a Joint Stock firm can raise a significant amount of capital.

8. Management: A democratic management system governs a Joint Stock Company, which is led by the firm's directors, who are elected representatives of shareholders.

9. Membership:The minimum number of members required to incorporate a private limited Company is two, and the maximum number is fifty, according to the Companies Act. However, in the case of a public limited corporation, the minimum number of members is seven and there is no limit on the total number of members.

10. Formation: In most cases, a Company is created on the initiative of a group of individuals known as promoters, but it only becomes operational after all of the requirements of the Companies Act 1956 have been met.