What is a Joint Stock Company?

A capital of a Joint Stock Company is divided into various stocks, called shares. Every member who holds a share is called a shareholder of the company. Therefore, the company can be said to be ‘jointly’ owned by the shareholders, whose capital contribution is entitled to the ‘stock’ that he or she holds.

Features of a Joint Stock Company

Under the Companies Act, a joint stock company has certain merits and provisions that it can enjoy, such as separate legal entity and perpetual succession. Here is a look at a few key characteristic features:

• Incorporated association of people: Joint Stock Company is incorporate by a voluntary group of people to carry out certain business activities.
• Membership: This group of people, also called members of the company, contribute money which is called the share capital of the company.
• Holdings: The company’s capital is divided into stocks, which the members hold based on the proportion of their contribution.
• Transferability of shares: The shareholders of the company have certain rights like the transferability of the shares, the right to receive dividends, limited liability, etc. 

Also Read: What are the essential features of Company?

Advantages and Disadvantages of a Joint Stock Company

There are various advantages and disadvantages of incorporating a joint stock company, let us look at a few:

Advantages:

• Limited liability: The members of a joint stock company enjoy limited liability, where the liability of the members towards the company is limited to the amount of their unpaid shares. This increases the investment in joint stock companies, as the personal assets of the members are protected and cannot be used by the company to pay its debts.

• Transferability of shares: The shares of a company can be transferred from one person to another. And in case of a listed company, they can be freely traded in the stock exchanges. Due to this ease of ownership, investment in the company becomes attractive.

• Perpetual succession: The lifespan of a joint stock company is not affected by the insolvency, death, insanity or retirement of its members, employees, or board of directors. The life of the company can only be ended by the process of winding up or dissolution.

• Management different from ownership: While the shareholders are the owners of the company, the board of directors of the company is the management of the company. Thus, despite the ownership, competent people can be hired to run the company to ensure effective management of the company.

Disadvantages:

• Compliance and procedure: A joint stock company has certain pre and post incorporation compliances that they must mandatorily adhere. This can be time-consuming and laborious. However, seeking professional help to help you with your company compliance and management can be an effective solution. The day to day functions of a company also involves following various laws and regulations this can be seen as a burden, which restricts the movement of the company and reduces the freedom of the company.

• Since there are numerous stakeholders in a company such as directors, shareholders, investors, promoters, creditors, vendors, it might be difficult to satisfy everyone at the same time. This can lead to certain conflicts of interest as everyone is trying to look out for their own interests rather than what’s best for the company.

• Since the company’s records are public, this might, at times, lead to loss of secrecy. While it is not seen as a major disadvantage, it can restrict the freedom of the company’s activities and ventures.