Have you ever heard of a company that is jointly owned by all its shareholders? This type of business entity is commonly known as a joint stock company. In this case, all the shareholders have a specific portion of shares, or “joint stocks”.
In this blog, you are going to learn about joint stock companies, their types, how they work, pros and cons, examples and much more. Let’s get started.
What is a Joint Stock Company?
A joint stock company is a business entity where ownership is divided into shares that investors can buy or sell. This allows shareholders to potentially earn high returns while providing the company with capital to fuel business growth and expansion.
One key feature of a joint stock company is that shareholders’ liability is limited to the value of their shares, which means their assets remain unaffected even if the company incurs debts or losses.
Additionally, the investors can freely transfer shares and give liquidity to investors. A joint stock company operates as a separate legal entity from its shareholders. The company can own assets, enter into contracts, and conduct business independently without impacting the personal interests of its individual investors.
Different Types of Joint Stock Companies In India
These are the different types of joint stock companies that can opened in India:
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Chartered Company
A chartered joint share company is established through a royal charter issued by the state. Historically, these companies used to hold significant influence and operated with privileges given by the monarch or government. However, these companies are no longer permitted in India. For instance, the East India Company and the Hudson’s Bay Company.
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Registered Company
Registered companies are incorporated by registering under the Companies Act or relevant business laws. These companies are further categorised into:
- Private Limited Company: Ownership is restricted to a select group, such as family members or close associates, and shares are not publicly traded.
- Public Limited Company: Anyone can buy shares of these companies from stock exchanges, which allows public investment and ownership.
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Statutory Company
These companies are created through certain acts passed by a country’s legislature or parliament. These acts or laws define the objectives, powers, and responsibilities. For example, Indian Railways and the Reserve Bank of India function under their respective legislative acts.
Joint Stock Company vs Private Company
A Joint Stock Company is a business entity where ownership is divided into shares, which can be publicly traded on stock exchanges. It allows for raising capital from the public. A Private Company, on the other hand, cannot offer shares to the public and is typically owned by a smaller group of shareholders. Private companies enjoy more privacy and fewer regulations compared to joint stock companies.
Features of Joint Stock Companies
Here are some essential features of a joint stock company you should know about:
- Separate Legal Entity: Unlike a sole proprietorship or partnership, a joint stock company exists independently of its owners.
- Limited Liability: Shareholders are not personally responsible for the company’s debts beyond their investment. The assets of shareholders are protected even if the company faces financial problems.
- Perpetual Succession: The company continues to exist even if its members change, and thus, it ensures stability.
- Transferable Shares: Shareholders can easily buy and sell their shares, which offers flexibility and liquidity.
- Membership: Public companies need at least seven members, with no maximum limit, and private companies need only two.
- Incorporation: To be recognised as a separate legal entity, the official registration of a joint stock company is compulsory.
How Does a Joint Stock Company Operate?
Joint stock companies raise funds by selling shares, and the shareholders are part-owners. Public joint stock companies list their shares on exchanges to attract more investors. On the other hand, privately owned companies have fewer shareholders.
Shareholders have limited liability by risking only their investment, which encourages participation. These companies work with shareholders, a board of directors, managers, and employees. The board manages the company, sets strategy, appoints executives, and reviews performance. Executives, led by a president or CEO, handle daily operations and enact board strategies.
Shareholders vote on key decisions such as choosing directors, managers or executives, major business transactions, etc., by law. The profits go to shareholders as dividends based on the number of shares they hold.
Benefits of Joint Stock Companies
These are some notable benefits of a joint stock company:
- Limited Liability: The personal assets of shareholders are protected from the company’s debt, which encourages more investors to invest.
- Transferability of Shares: Shares can be easily sold, which allows for changes in ownership without disrupting the company’s operations.
- Perpetual Succession: A joint share company continues to exist regardless of changes in shareholders or directors.
- Economies of Scale: Large-scale operations reduce overall costs and help in efficient resource utilisation.
- Scope for Expansion: A public company has no restriction on the maximum number of members, so expanding the business is easy by issuing new shares and debentures.
- Efficient Management Structure: Joint share companies typically employ a board of directors to oversee the management team. By having talented and experienced people provide oversight and guidance for the CEO, the joint company structure ensures that shareholders’ interests are upheld.
Drawbacks of Joint Stock Companies
These are the disadvantages of joint stock companies:
- Difficulty in Forming a Company/Excessive Legal Formalities: Setting up a joint stock company involves numerous legal procedures and formalities, which makes the formation process complex and lengthy.
- Costly: The administrative and formation costs to establish a joint share company can be fairly significant.
- Lack of Confidentiality: Joint-stock companies must disclose financial reports and other information publicly, which leads to a lack of discretion and confidentiality.
- Slower Decision-Making: Decision-making can be slow, as important decisions are made by the board of directors and shareholders in general meetings. It makes the decision-making process slower.
- Conflict of Interest: Stakeholders, such as owners, employees, the Board of Directors, etc., may have disagreements and conflicting interests.
Popular Examples of Joint Stock Companies
These are some examples of joint stock companies in India:
- Reliance Industries Limited (RIL)
- Tata Consultancy Services (TCS)
- HDFC Bank
- Infosys
- Bharti Airtel
- State Bank of India (SBI)
- Larsen & Toubro (L&T)
- Hindustan Unilever Limited (HUL)
- ICICI Bank
- Bajaj Auto Limited
- Wipro Limited
Some of the global joint stock companies are:
- Apple Inc
- Google (Alphabet Inc.)
- Tesla
- Microsoft
Difference Between a Joint Stock Company v/s a Public Company
Follow this table to learn the difference between a joint stock company and a public company:
| Feature | Joint Stock Company | Public Company |
| Ownership Transfer | It may have restrictions, such as for private joint stock companies. | The shares of public companies are transferable on exchanges freely. |
| Disclosure | The requirements of reporting are fewer. | Public companies have strict requirements for reporting. |
| Regulation | With fewer obligations, these companies are subject to company law. | Public companies are regulated by SEBI and stock exchanges. |
| Share Trading | Shares are generally traded on stock exchanges, if not restricted, such as private joint stock companies. | Shares are freely traded on stock exchanges. |
Final Thoughts
A joint stock company is a business structure where ownership is divided into shares which allows individuals to pool resources and share ownership. These companies are recognised as separate legal entities from their shareholders.
Navigating today’s complex regulations to protect investors and ensure fair markets, joint-stock companies are well-positioned to remain a dominant force in the business world for years to come.
If you are interested in investing in joint stock companies, you can open a demat account with Torus Digital to trade and buy shares seamlessly.
