What is a Joint-Stock Company?
A joint-stock company is a business that is owned by its investors. The shareholders buy and sell shares and own a portion of the company. The percentage of ownership is based on the number of shares that each individual owns. Shareholders can buy and sell shares and transfer shares between one another, without putting the continued existence of the company in jeopardy.
Joint-stock companies are generally formed to enable a company to thrive. If only a few shareholders participated, the company wouldn’t be able to fund itself. But by banding together, the individuals make it possible to build a thriving business, with each shareholder then expecting to profit from the company’s success. Each member gives and each member takes.
- Joint-stock companies are businesses that combine the structure of a corporation with the flexibility and freedoms of a partnership/limited liability company.
- Joint-stock companies are built to benefit all shareholders; each investor owns a piece of the company – in accordance with the amount they’ve invested – and takes a percentage of the company’s profits.
- Shareholders get multiple voting rights, electing a board of directors to manage the company on their behalf, while still having a say in every part of how the company is run.
Benefits of Joint-Stock Companies
Joint-stock companies allow a solid business to form and thrive with many working together. Each shareholder invests in the company and is able to benefit from the business. Every shareholder owns a piece of the company, up to the amount that they’ve invested.
Ownership comes with additional privileges. Shareholders have a say in everything that happens with a joint-stock company, without actually having to run the company. Shareholders elect a board of directors to manage the company on their behalf. Positions are usually filled – through elections – once a year, though the specifics may be different for each company.
Shareholders not only vote for the board of directors, but also vote to approve or deny annual reports, budgets, and how accounts are set up. In some instances, specific shareholders may be asked to step into a role if the role is not filled or becomes unoccupied. The practice isn’t common, but, when it does happen, individuals are usually chosen by consensus among those filling the other positions and the rest of the company’s shareholders.
Limited Liability Companies (LLCs)
Today’s corporate law usually makes joint-stock companies synonymous with limited liability companies (LLCs). What does this mean? LLCs are private companies. They are a sort of hybrid; they combine a pass-through taxation partnership with all the benefits of a corporation.
The best part of an LLC is the fact that it’s incredibly flexible and beneficial to all members. Each party involved in the company (each shareholder) is liable for the debts of the company but only equivalent to the amount that they’ve invested in the entity. It falls in line with the idea discussed above – that each shareholder owns and is responsible/liable for the percentage of shares they hold in the joint-stock company.
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: