Joint Stock Company: Explaining Definition and Features

A joint stock company is a type of business owned by multiple investors. In this company, each and every shareholder holds a portion of the company’s stock. In this blog post, we shall explain to our readers what is joint stock company meaning, its advantages and disadvantages, and more. 

Definition of Joint Stock Company

A joint stock company definition can be explained as a business entity owned collectively by its shareholders. Each stakeholder holds a specific portion of ownership in the form of shares. These shares are transferable, and in the case of a publicly held joint stocks company, they are traded on recognized stock exchanges such as the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). 

To explain joint stock company in a simple line, it is basically a business entity where ownership is divided into transferable shares held by multiple shareholders. In India, the Joint Stock Company Act is known as Companies Act 2013. This Act is the primary legislation for governing the joint stocks company in India. It applies to all types of companies, including both listed and unlisted ones.

Features of Joint Stock Company 

The features of a joint-stock company in India are as follows.:-

• A joint-stock corporation is a separate legal entity from its shareholders. It can own assets and can sue or be sued in its name.
• It comes with perpetual succession. This means that such a company continues to exist regardless of changes in its membership in the event of a shareholder’s death, insolvency or departure of shareholders.
• A joint-stock entity registered as a public limited company can be formed with a minimum 7 members. It has no maximum members’ limit.  
• A joint-stock corporation offers limited liability protection to its shareholders. Therefore, in case of business debt or losses, the shareholders’ personal assets are usually not at risk.
• A company can only be incorporated as a joint-stock company in India if it has been registered with the Ministry of Corporate Affairs (MCA). 
• In such a company, a shareholder can transfer their shares without having to consult with other shareholders.

Advantages and Disadvantages of Joint-Stock Company

The advantages and disadvantages of joint-stock companies are provided in this section.:-

Advantages of Joint Stock Companies

The advantages of these companies are explained below.:-

• The joint-stock companies can issue shares and debentures. By doing this, they can raise substantial capital to expand their business operations and propel business growth and revenue. 
• In such companies, the shareholders’ personal assets are typically protected. Their liability is limited to the investment they’ve made in shares.
• Such companies offer stability. Even when there are changes in the membership, such companies continue to exist. This is in contrast to partnership firms. Such firms are often unstable because the death, departure or insolvency of a partner can lead to their dissolution. 
• In the joint-stock corporations registered as public ltd companies, it is quite easy and common for the shareholders to sell their shares, offering liquidity. The process for doing this is also quite straightforward.
• Publicly listed joint stocks companies regularly disclose their financial statements. This way they ensure accountability, build investor confidence and enhance their credibility.
• Because of access to substantial funds, such companies can hire skilled professionals and implement efficient management systems.

Disadvantages of Joint Stock Companies

The disadvantages of these companies are explained below.:-

• The joint-stock companies contain several shareholders. As a result, sometimes conflicts of interest can arise among shareholders and management, making decision-making slower. 
• The process for establishing and managing a joint-stock entity can be a bit lengthy and overwhelming. Additionally, it requires compliance with various rules and regulations.
• It has higher expenses associated with incorporation, management and compliance with all the legal requirements.
• A publicly listed joint-stock corporation lacks confidentiality as it is required to publicly disclose its financial reports and performance. As a result, such a company often ends up exposing key business strategies.
• It is subject to double taxation. The company must pay corporate taxes on its profits, and its shareholders are taxed again on the dividends they receive.

Conclusion

A joint-stock company is a business entity governed by the Companies Act 2013 and the rules made thereunder. In this type of company, the shareholders hold a portion of the company’s stock. It is a separate legal entity from its shareholders, and can own properties, enter business contracts, and sue or be sued in its name. It continues to exist regardless of changes in membership (whether in event of shareholder’s demise, insolvency or departure). All the shareholders of a joint stocks company get limited liability protection. This means that in case the company incurs debt, the shareholders’ personal assets are generally not at risk. 

Need assistance in joint stock company formation? Connect with our company registration experts at Registrationkraft as soon as possible! We will help you register your company with the Registrar of Companies, Ministry of Corporate Affairs, and enable you to secure the Certificate of Incorporation in your company’s name in a smooth and hassle free manner.

Frequently Asked Questions (FAQs)

Q1. What are the merits of joint stock company?

Its merits include limited liability protection, perpetual succession, easier access to funding and enhanced reputation as well as trust among investors.

Q2. What are the benefits of joint stock company?

Its benefits include enjoying perpetual succession, offering limited liability protection to its members and the ability to raise substantial capital among others.

Q3. Which Act governs joint-stock corporations in India?

The Companies Act 2013 governs them.

Q4. Are all joint-stock companies publicly listed companies?

No, not all joint-stock companies are publicly listed companies. Some of them are private companies whose shares aren’t listed on the stock exchanges. 

Q5. Can a joint stocks company be registered as a private limited company?

Yes, a joint stocks company can be registered as a private limited company. However, in this case, it cannot make its shares publicly available.

Q6. Does a publicly traded joint stocks company need to disclose its financial reports to the general public?

Yes, a publicly traded joint stocks company is required to disclose its financial reports to the general public.