Joint Stock Company - Explained
What is a Joint Stock Company?
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What is a Joint-Stock Company?
A Joint Stock Company is another manner of indicating a corporation. As such, the phrase is no longer commonly used in the United States. In reality, a joint stock company is any type of company that is jointly owned by investors or shareholders who own its shares. In the modern world, joint-stock companies outnumber sole proprietorships or partnerships, which do not have shares of stock. Here are some vital things to note about a joint-stock company:
- A company owned by the totality of the shareholders of the company is a joint-stock company.
- The ownership is based on the proportion of the company's shares they hold.
- In the early days, shareholders of joint-stock companies have unlimited liability because the companies are not incorporated.
- To a large degree, modern joint-stock companies are incorporated, hence, shareholders have limited liability.
How Does a Joint-Stock Company Work?
The profits and losses of a joint-stock company are shared by its owners in line with the proportion of the company's shares they own. A typical joint-stock company is one in which its shareholders have unlimited liability for the company's debts. Unlimited liability connotes that if the company is in serious debt, persona properties belonging to shareholders can be sold to pay off the debt. The only exception for unlimited liability is the incorporation of a joint-stock company. Shareholders can sell their shares or transfer them at any time, this poses no threat to the company. While the shareholders of public joint-stock companies traded their shares on public exchanges, those in private companies transfer between parties. Joint-stock company first emerged in Europe in the early centuries, it was developed in the 13th century but began to be prominent in the 16th century. This development relieved founder of large companies of the burden of looking for a huge amount of capital to start up their business. Using the joint-stock company method, investors can finance the development of a company in exchange for the shares of the company. This in turn means that they share in the ownership of the company, hence, the company is not owned by the founder but by all the shareholders. One of the most prominent early joint-stock companies was the Virginia Company of London, which was formed in 1606. After this, several other joint-stock companies emerged in Europe and beyond.
Joint-Stock Company Versus Public Company
Joint-stock company is present in all countries of the world, as a worldwide practice, the regulations of these companies are based on statutory laws adopted by each country. In most countries, joint-stock companies are incorporated in order to minimize the liability that shareholders of the company can experience. Most public companies are joint-stock companies, that is, they have their shares owned by shareholders who jointly own the company. Nowadays, a joint-stock company is also called a public company, or a corporation.
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