Joint Stock Company: Definition, Features, Merits & Demerits

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What is a Joint Stock Company?

A joint stock company or a public limited liability company is that form of business organization in which the liability of the shareholders is limited to the amount of capital they contributed and the unpaid part of the capital allotted to them. It must have a minimum of seven members but no maximum membership is prescribed for it.

Joint Stock Company
Joint Stock Company

Joint Stock or Public Limited Liability Company

A joint-stock company is a commercial company with legal personality, in which the capital is divided according to the contributions of each partner.

The capital of Joint Stock Company is distributed through shares that confer the status of partner on the owner.

The fundamental characteristic of the public limited company is that the partner only contributes the capital and does not respond personally to the social debts, risking only the contribution of the subscribed shares without compromising their social assets.

This means that the corporate obligations are guaranteed by a certain capital and the partners are bound by the amount of their share.

The shares grant economic and political rights within the company to the shareholders, who differ from each other by the nominal value of the shares or the types of rights granted by each share.

Incorporation of a Limited Company

To form or constitute a public limited company, a public deed must be made with its so-called statutes, as contemplated in the commercial code of each country. A public limited company is made up of three bodies:

  • The general meeting of shareholders or general assembly of partners;
  • The administration of the company, and
  • The supervisory board.

Likewise, a minimum number of partners or shareholders and a minimum share capital or capital subscription must be determined. The constitutive document of the corporation must establish the statutes in a clear, objective and detailed manner.

General meeting of shareholders or general meeting of partners

The general meeting of shareholders or general assembly of partners is the administrative and supervisory body of the public limited company. The meeting is held in an ordinary or extraordinary way.

Ordinary meetings are held once a year to deal with financial matters, distribution of dividends, appointment of new directors, among other points; Extraordinary meetings are held urgently when requested by the meeting or partners to discuss issues that justify the interests and future of the company.

Joint Stock Company Administration

The administration of the Joint Stock Company is the representative body of the company and they are in charge of the executive part of the company.

Features of Joint Stock Company

  • It enjoys a wide spread ownership since maximum membership is not prescribed.
  • It has the privilege of limited liability.
  • There is a legal recognition of the company as a separate entity.
  • There is a tendency for ownership to be separated from control of the business.
  • There is continuity of existence i.e. it has a perpetual life.

Advantages of Joint Stock Company

  • Liability of shareholders is limited.
  • It is capable of raising large capital due to the large number of shareholders.
  • It ensures easy transfer of shares for cash or liquid assets through the Stock Exchange.
  • It enjoys perpetual existence since death or withdrawal of any member has no effect on its existence.
  • There is a wider spread of business risks resulting in reduced loss in the event of a failure.
  • Its ability to secure the services of efficient managers and other personnel is very strong.
  • Employees can become co-owners as they can purchase shares in their company.
  • Company’s accounts must be made public.

Disadvantages of Joint Stock Company

  • There is an impersonal relationship between the management and the shareholders owners.
  • There may be labour unrest resulting from a large number of workers operating there.
  • Negative attitude of paid managers may run counter to the interest of the shareholders/ owners.
  • There is the need to furnish the Registrar of companies with almost all vital information about the company.
  • There is no privacy.
  • Loss of controlling interest.

Types of Public Limited Company

1. Closed Stock Company

The closed stock company is characterized by being made up of less than 20 shareholders. It is not registered in the Public Registry of the Stock Market.

Likewise, the closed corporation does not resort to public savings; their contributions are merely private since they come from the founders of the company.

2. Open Limited Company

The open limited company is identified by resorting to public savings in search of financing, either to build capital or increase it. It also seeks to register its shares in the Public Securities Registry in order to list the shares on the stock market.

Difference Between Corporation and Partnership

The collective partnership differs from the corporation since the liability is unlimited, that is, in the event that the equity of the partnership is insufficient to cover the payment of a debt, the partners must respond with their own equity for the payment of The duty.

That is why the collective society has gradually disappeared due to the lack of a liability limit on the part of the partners or shareholders.

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