Joint Stock Company

Joint Stock Company

It is an association of persons united for the purpose of carrying on a business whose capital is formed of shares. It is a business owned by its investors, with each investor owning a share based on the amount of stock purchased. The proportion of capital contributed to the joint-stock is called a share. It is a business entity in which people can buy and sell their stock. Each stockholder owns company stock in proportion. Every share is liable for the amount of unpaid. Shares are transferable and may be sold at any time. It is a way to incorporate a given business with two or more shareholders.  Stockholders can sell their stocks to others without the sale affecting the company’s existence in any way.

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. It is a legal association between individuals that creates a new entity for business purposes.

Advantages

  • 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.
  • A board of directors manages the company on behalf of the shareholders. Shareholders elect board members at an annual general meeting.
  • The shares of a company are transferable. This ease of ownership is an added benefit. The shareholders may also vote to reject or accept an annual report as well as an audited set of accounts.
  • If a vacancy occurs, shareholders may stand for directorships within the 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. Also, a company usually has large resources and this allows them to hire the best talent and professionals.

Disadvantages

  • 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.
  • The directors manage the company with the help of paid officers. If the directors are dishonest, they may make a personal gain at the expense of the company.
  • It not only takes up time but also reduces the freedom of a company. Directors and managing agents may appoint their own relatives as the important officers of the company.
  • A company has many stakeholders like the shareholders, the promoters, the board of directors, the employees, the debenture holders, etc.
  • Maintaining secrecy is the most difficult part in any Joint Stock Company. Every matter has to be discussed in the board of directors’ meeting or in the annual general meeting of shareholders.