What is a JointStock Company?
Almost all the major organisations that we read about in newspapers or come across on television are JointStock companies. Neither proprietorships nor partnerships can challenge the dominance of a JointStock Company globally. All largescale businesses run on this model.
But what is JointStock Company mean? How does the base model enable so many large enterprises to operate? Read on.
Joint Stock Company Definition
A JointStock Company is a common business model where capital is divided into transferable shares, allowing ownership through share purchases. Shareholders, both large and small, aim for profit and have voting rights on company decisions. They may also receive dividends, though not all shareholders are entitled to them. Large companies like Tata Consultancy Services (TCS) are examples of JointStock Companies, with numerous shareholders acting as coowners. This model is prevalent globally, especially as businesses expand beyond sole ownership, like the Walt Disney Corporation or Dunlop Tyres, which transitioned to this structure as they grew in size.
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.
Types of Join Stock Companies
1. Private Limited Company (Pvt Ltd)
Limited number of shareholders (usually up to 50).
Shares cannot be publicly traded.
Shareholders have limited liability.
Common for smaller businesses or startups.
2. Public Limited Company (Ltd)
Unlimited number of shareholders.
Shares are publicly traded on stock exchanges.
Shareholders have limited liability.
Suitable for large businesses looking to raise capital from the public.
3. Unlimited Company
Shareholders have unlimited liability.
Shareholders are personally responsible for the company’s debts beyond their investment.
Less common, typically used for specific financial structures or trusts.
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:
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.
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.
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.
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.
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:
Liability is Limited – It encourages more people to jump aboard a Joint-Stock entity.
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.
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:
A very long gestation period since a lot of regulatory red tape has to be crossed.
Such firms have a complete lack of secrecy because their financial records must be provided to registrars under the Companies Act (Amended), 2013.
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.
FAQs on Joint Stock Company: Features and Advantages
1. What is a Joint Stock Company?
A Joint Stock Company is a business where the capital is divided into transferable shares. Shareholders own the company through these shares and share profits. The company is a separate legal entity from its shareholders.
2. What are the types of Joint Stock Companies?
The main types include Private Limited Companies (Pvt Ltd), Public Limited Companies (Ltd), and Unlimited Companies.
3. What are the key characteristics of a Joint Stock Company?
Key features include separate legal entity status, limited liability for shareholders, perpetual succession, transferable shares, and a common seal.
4. How does a Joint Stock Company raise capital?
A Joint Stock Company raises capital by issuing shares to the public or private investors, which can be bought and sold on stock exchanges.
5. What is the liability of shareholders in a Joint Stock Company?
Shareholders have limited liability, meaning they are only liable for the amount of money they invested or the shares they hold in the company.
6. What are the advantages of a Joint Stock Company?
Advantages include limited liability, ease of raising capital, transferable shares, democratic management, and perpetual existence.
7. What are the drawbacks of a Joint Stock Company?
Drawbacks include a long formation process, lack of secrecy, and the potential for conflicts of interest between shareholders and management.
8. What is the role of a Board of Directors in a Joint Stock Company?
The Board of Directors is responsible for managing the company’s affairs, making major decisions, and representing the shareholders. They are elected by the shareholders during Annual General Meetings.
9. What is a statutory company?
A statutory company is formed under a specific Act of Parliament and has objectives defined in that Act. It is regulated by law and operates under government authority.
10. What is the minimum number of members for a Joint Stock Company?
A Private Limited Company needs at least two members, while a Public Limited Company requires a minimum of seven members.
