Joint Stock Companies: Its Types and Share Capital
A joint-stock company (JSC) is a form of company or joint venture involving two or more individuals that own shares of stock in the business. Certificates of ownership (“shares”) are issued by the corporation in return for each financial contribution, and the shareholders are free to relocate their ownership interest at any time by selling their shares to others.
At present, company law the existence of a joint-stock company is often identical with incorporation (i.e. possession of authorized personality separate from shareholders) and limited liability (meaning that the shareholders are only liable for the company’s debts to the value of the money they invested in the company). And as an outcome joint-stock company is generally known as corporations or limited companies. Joint-stock companies are created in order to finance endeavors that are too expensive for an individual or even a government to fund. The owners of a joint-stock company expect to share in its profits.
Unless the company is incorporated, the shareholders of a joint-stock company have unlimited liability for company debts. The legal process of incorporation, in the U.S., reduces that liability to the face value of stock owned by the shareholder. In Great Britain, the term “limited” has a similar meaning.
The shares of a joint-stock company are transferable. If the joint-stock company is public, its shares are traded on registered stock exchanges. Shares of private joint-stock company stock are transferable between parties, but the transfer process is often limited by agreement, to family members, for example.
Historically, investors in joint-stock companies could have unlimited liability, meaning that a shareholder’s personal property could be seized to pay off debts in the event of a company collapse.
Types of Joint Stock Company
- Chartered Company
The companies that form by the order of the king of England are called the charter company. These companies were formed before 1844. For example, East India Company, Chartered Bank of England, the charter of the British South Africa Company, given by Queen Victoria (More information here)
- Statutory Company
Companies that are formed by the order of the President, or by the Legislative Committee or by bill of Parliament are called Statutory Company. These Companies are operated by those laws. For example, municipal councils, universities, central banks and government regulators, Central Bank. (More information here)
- Registered Corporation
Companies that are formed under the prevailing law of the company are called the registered company. The corporation that has filed a registration statement with the SEC prior to releasing a new stock issue. It is two types-
(i) Unlimited Company: The liabilities of the shareholders of this company are unlimited. For example, British all-terrain vehicle manufacturer Land Rover, GlaxoSmithKline Services Unlimited.
(ii) Limited Company / limited corporation: The liabilities of the shareholders are limited. For example, Charitable organisations, Financial Services Authority. This liability of a company can be of two types.
(a) By Guarantee
(b) By share value. The company limited by share can be of two types.
- Private Limited Company, where the number of shareholder ranges from two to fifty. The share of these companies can’t be traded in the stock market.
- Public Limited Company, where the number of shareholder ranges from seven to share limitation. The share of the public limited company is traded in the stock market.
- One of the biggest drawing factors of a joint stock company is the limited liability of its members. their liability is only limited up to the unpaid amount on their shares. Since their personal wealth is safe, they are encouraged to invest in joint stock companies
- The shares of a company are transferable. Also, in the case of a listed public company they can also be sold in the market and be converted to cash. This ease of ownership is an added benefit.
- Perpetual succession is another advantage of a joint stock company. The death/retirement/insanity/etc does affect the life of a company. The only liquidation under the Companies Act will shut down a company.
- A company hires a board of directors to run all the activities. Very proficient, talented people are elected to the board and this results in effective and efficient management. Also, a company usually has large resources and this allows them to hire the best talent and professionals.
- One disadvantage of a joint stock company is the complex and lengthy procedure for its formation. This can take up to several weeks and is a costly affair as well.
- According to the Companies Act, 2013 all public companies have to provide their financial records and other related documents to the registrar. These documents are then public documents, which any member of the public can access. This leads to a complete lack of secrecy for the company.
- And even during its day to day functioning a company has to follow a numerous number of laws, regulations, notifications, etc. It not only takes up time but also reduces the freedom of a company
- A company has many stakeholders like the shareholders, the promoters, the board of directors, the employees. the debenture holders etc. All these stakeholders look out for their benefit and it often leads to a conflict of interest.