Joint Stock Company

Introduction: There is a tendency to regard the joint-stock company as the symbol of capitalistic economy. The operations of companies now embrace by far the largest part of the economic life of the country. These large companies do control vast amounts of the wealth, employ millions of workers, and have an enormous impact on the economy of the country. The economic policy of the country also is largely companies have revolutionized the business fields.


Sole trader ship was the only from of business organization but there emerged some problems, which the sole proprietors were unable to solve. First, they faced the problem of finance as there is a definite limit of financial capacity of an individual. Secondly, it was very difficult to run a big business since human capability has certain limits. They felt the need for taking help of others in order to pool the brain, resources and kills from more than one man. Thus emerged the partnership from of business organization. This was also not free from the disabilities in the field of large-scale production and distribution. Moreover, it was observed that there were reluctant to put their resources having unlimited liability. Then a joint-stock from of business organization emerged to redress the disabilities of the other forms of business organization. Moreover, as soon industrial revolution rook place, the method of production changed, production was carried on a large-scale, and huge amount of capital was felt necessary to substitute the traditional method of production. The introduction of factory system helped reduce the cost of production and could meet the requirement of the mass. This necessitates a new form of organization, which would enable the promoter to get finances unit freed from the demerits company. Now this form of organization has been introduced mostly in the field of large-scale production and distribution with more economic benefits.

Before the enactment of the companies act in nineteenth century, such enterprises used to be floated by means of royal proclamation or royal charter in England. Promoters had to apply to the king through the parliament for the necessary sanction. The join-stock company formed in such a ways was know as chartered company and used to include the chartered as a part of its name. Up till then all joint-stock companies were known as chartered companies. As the formation of this company was very difficult and it was felt necessary to have more joint-stock companies for the rapid economic development of forming companies by royal charter was abolished, since then all joint-stock companies had to register themselves under the companies Act.

A joint stock company is a type of business partnership in which the capital is formed by the individual conributions of a group of shareholders. Certificates of ownership or stock are issued by the company in return for each contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others.

Ownership of stock confers a number of privileges. The company is managed on behalf of the shareholders by an elected Board of Directors. Consequently, the share owner may attend an annual general meeting, and vote for directors and sometimes the principal officers. The shareholders receive an annual report, and vote upon the yearly audited set of accounts. Other reslutions upon important decisions can be put to them. There are other meetings, which may be called, either regularly or by special resolution of either the Board or the shareholders themselves.

Of course, individual shareholders can sometimes stand for directorships within the company, should a vacancy occur, but this is unusual.

The shareholders are usually liable for any company debts that exceed the company's ability to pay. However, the limit of their liability only extends to the face value of their shareholding.

Ordinary shares entitle he owner to a share in the company's net profit. This is calculated in the following way. The net profit is divided by the total number of owned shares, producing a notional value per share, known as a dividend. The individual's share of the profit is thus the dividend multiplied by the number of shares that they own.

The joint stock company was a forerunner of contemporary corporate entities such as the American business corporation, the British public limited company, the French societe anonyme, the German Aktiengesellschaft and the Japanese kabushiki kaisha. In some countries, "joint stock company" is used as an English translation for business forms that more closely resemble corporations.

During the period of colonialism, the joint stock company was a financing model that allowed companies to raise large amounts of capital while lowering risk by diversifying contributed capital among multiple ventures. Europeans, initially the British, trading with the Near East for goods, pepper and calico for example enjoyed spreading the risk of trade over multiple sea voyages. The joint stock company became a more viable financial structure than previous guilds or state regulated companies.

Transferable shares often earned positive returns on equity, which is evidenced by investment in companies like the British East India Company, which used the financing model to manage trade in India. Joint stock companies paid out divisions, dividends, to their shareholders by dividing up the profits of the voyage in the proportion of shares held. Divisions were usually cash, but when working capital was low and it was detrimental to the survival of the company, divisions were either postponed or paid out in remaining cargo which could be sold by shareholders for profit in the market.

It also made it affordable to support early colonists in America. Jamestown, for instance, was financed by the Virginia Company. It is because of Joint stock companies that the colonization and settlement of America were made possible.

While traditional joint stock companies still exist in some areas, they are generally considered an unattractive alternative to limited liability entities.

Meaning of a joint-stock company:

A joint-stock company is an association of many persons who contribute money or money’s worth to a common stock and employs it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is has share. A joint-stock company is so called because the capital or stock is jointly contributed by the members. Briefly a joint-stock company may be defiant, possessing a common capital contributed by the members composing it such capital being divided into shares of which each member holds one or more and the liability of such member is limited to the face value of the shares he possesses.

Features of joint-stock company:

A join-stock company is an artificial being invisible intangible and existing only in contemplation of law. The corporation personality perpetual succession transferability of shares diffusion of ownership separation of ownership from management and administration and limited liability of shareholders are the main characteristics which distinguish it from other forms of ownershipo.

Corporate personality: A joint-stock company exists in the contemplation of law and some view it as a mute dumb and imbecile person. As it is the creation of law it possesses these properties which the charter of its creation confers on it. The personality conferred by law though artificial is significant it can sue and be sued in its own name.

Perpetual succession: Unlike a sole proprietorship or a partnership a join-stock company has a perpetual existence. A partnership dissolves on the date retirement or insolvency of any of the partners. But a joint-stock company survives even if all members did in an air crash simultaneously.
Transferability of shares: Unlike other form of ownership discussed so far shares in a public limited company are freely transferable member of a public limited company have complete freedom to sell their shares.

Diffusion of ownership: The number of persons willing to form a partnership must not exceed ten in case of banking business and twenty in other business. But there is no such limit of the number of member in a public company and a private limited company can have as many as fifty shareholders.

Separation of ownership from management and administration: partners in a firm are not only the owners but they also take part in the management and administration of the business. But this is not possible in a join-stock company. Where the number of owner is more. As such management is necessary to be entrusted to a separate body known as board of directors. The larger the company the more is the separation of ownership from the management. 

Limited liability: The liability of shareholder is limited to the face value of the shares he possesses. Unlike partnership he cannot be asked to pay more than the value of the shares he holds he has no further liability if he has paid the full value of shares he has agreed to pay.