What is a joint stock company?
Modern society has its origins in the public limited company. A joint stock company is a company belonging to its investors, each investor owning a share depending on the amount of shares purchased.
Joint stock companies are created in order to finance projects that are too costly to finance for an individual or even a government. The owners of a joint stock company plan to share its profits.
Historically, investors in joint stock companies could have unlimited liability, which meant that a shareholder’s personal property could be foreclosed on to repay the company’s debts.
Operation of a joint stock company
Unless the company is incorporated, the shareholders of a joint stock company have unlimited liability for the debts of the company. In the United States, the legal incorporation process reduces this liability to the face value of the shares held by the shareholder. In Britain, the term “limited” has a similar meaning.
The shares of a joint stock company are transferable. If the public limited company is public, its shares are traded on registered stock exchanges. The shares of private limited companies are transferable between the parties, but the transfer process is often limited by agreement, to family members, for example.
Historically, investors in joint stock companies could have unlimited liability, which meant that the personal property of a shareholder could be foreclosed on to repay debts in the event of the bankruptcy of a company.
Brief history of joint stock companies
There are registers of joint stock companies in the course of incorporation in Europe from the 13th century. However, they seem to have multiplied from the 16th century, when adventurous investors began to speculate on the opportunities to be discovered in the New World.
European exploration of the Americas has been largely funded by public limited companies. Governments were hungry for new territory but hesitant to bear the enormous costs and risks associated with these endeavors.
This led entrepreneurs to develop a business plan. They would sell shares of their companies to many investors to raise funds to finance trips to the New World. The potential to exploit resources and develop trade has attracted many investors. Others literally wanted to claim a claim in the New World and establish new communities that would be free from religious persecution.
In American history, the Virginia Company of London is one of the oldest and most famous joint stock companies. In 1606, King James I signed a royal charter granting the company exclusive rights to establish a colony in what is today Virginia. The Virginia Company’s business plan was ambitious, ranging from mining the region’s gold resources (there were none) to finding a waterway to China (they didn’t fact).
After many difficulties, the company succeeded in establishing the colony of Jamestown in Virginia and began to grow and export tobacco. However, in 1624, an English court ordered the dissolution of the company and converted Virginia into a royal colony. Investors in the Virginia Company have never seen a profit.
Joint stock company against listed company
The term joint stock company is practically synonymous with a joint stock company, a public company or simply an ordinary company, with the exception of this historic association with unlimited liability. In other words, a modern corporation is a corporation that was formed to limit the liability of the shareholders.
Each country has its own laws regarding a public limited company. These usually include a process to limit liability.
Key points to remember
- A joint stock company is a company collectively owned by its shareholders.
- Historically, a joint stock company was not incorporated and its shareholders could therefore bear unlimited liability for the debts of the company.
- In the United States, the incorporation process limits shareholder liability to the face value of their shares.