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Highlights
- A joint-stock company is a company which is collectively owned by its investors.
- Each investor owns a share in the company based on the percentage of ownership.
- Generally, joint-stock companies are formed to finance projects that are too expensive for an individual or even a government to fund.
A joint-stock company is a company which is collectively owned by its investors. Each investor owns a share in the company based on the percentage of ownership. The shareholders of the firm can easily transfer shares between one another without negatively impacting the existence of the company. However, the transfer is often limited by an agreement.
Generally, joint-stock companies are formed to finance projects that are too expensive for an individual or even a government to fund. The owners of the company have a share in its profits.
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In terms of liability, joint-stock companies have been seen to carry unlimited liability historically. It implies that personal property of a shareholder in the firm could be seized by authorities to repay debts in case of a collapse. In US, the legal process of incorporation has lowered the liability to the shareholder-stock’s face value.
Benefits of a joint-stock company
As already discussed, a joint-stock company is formed to fund an expensive endeavor, which is otherwise difficult to get funded by individuals or even a government.
- Each shareholders benefits from the business, up to the amount that he has invested.
- Shareholders have a say in everything that happens with a joint-stock company. It includes selection of board of directors to manage the company on their behalf.
- Shareholders also vote to approve or deny annual reports and budgets.
- Shareholders are generally not liable for any of the company debts that extend beyond the company's ability to pay up to the amount of them.
- Joint-stock companies are separate legal existence. It implies they have other existence rather than the owner.
- Perpetual succession is another advantage of such a company.
Disadvantages of a joint-stock company
- Formation of a joint-stock company involves a lengthy procedure.
- The company has to follow numerous regulations, which may take up the company’s time and reduce its freedom.
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How is a joint-stock company different from a public firm?
The term joint-stock company is generally closely associated with a corporation, public company, or a plain company, except for a historical association with unlimited liability.
A modern corporation is a joint-stock company incorporated to limit shareholder liability. Different countries have different laws related to a joint-stock company, including a process to limit liability.
Bottom Line
A joint-stock company is a venture jointly owned by all its shareholders. Even as such a company has several advantages, presence of several stakeholders including, shareholders, promoters, and board directors may at times lead to a conflict of interest.
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