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Joint stock company

Joint stock company

Overview
A joint-stock company is a type of corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 or partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

 involving two or more individuals that own shares of stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 in the company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...

. Certificates of ownership ("shares") are issued by the company in return for each financial contribution, and the shareholders are free to transfer their ownership
Ownership
Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties. The concept of ownership has...

 interest at any time by selling their shareholding to others.

In Modern company law the existence of a joint-stock company is often synonymous with incorporation (i.e.
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Encyclopedia
A joint-stock company is a type of corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 or partnership
Partnership
A partnership is an arrangement where parties agree to cooperate to advance their mutual interests.Since humans are social beings, partnerships between individuals, businesses, interest-based organizations, schools, governments, and varied combinations thereof, have always been and remain commonplace...

 involving two or more individuals that own shares of stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 in the company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...

. Certificates of ownership ("shares") are issued by the company in return for each financial contribution, and the shareholders are free to transfer their ownership
Ownership
Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate or intellectual property. Ownership involves multiple rights, collectively referred to as title, which may be separated and held by different parties. The concept of ownership has...

 interest at any time by selling their shareholding to others.

In Modern company law the existence of a joint-stock company is often synonymous with incorporation (i.e. possession of legal personality separate from shareholders) and limited liability (meaning that the shareholders are only liable for the company's debts to the value of the money they invested in the company). And as a consequence joint-stock companies are commonly known as corporation
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

s or limited companies
Limited company
A limited company is a company in which the liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by shares or by guarantee. And the former of these, a limited company limited by shares, may be...

.

Some jurisdictions still provide the possibility of registering joint-stock companies without limited liability. In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

 and other countries which have adopted their model of company law, these are known as unlimited companies. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 they are, somewhat confusingly known as joint-stock companies.

Advantages


Ownership of stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 confers a large number of privileges. The company is managed on behalf of the shareholders by a Board of Directors, elected at an Annual General Meeting. The shareholders also vote to accept or reject an Annual Report and audited set of accounts. Individual shareholders can sometimes stand for directorships within the company, should a vacancy occur, but this is uncommon.

The shareholders are usually liable for any of the company debts that exceed the company's ability to pay. However, the limit of their liability only extends to the face value of their shareholding. This concept of limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...

 largely accounts for the success of this form of business organization.

Ordinary shares entitle the owner to a share in the company's net profit
Net profit
Net profit or net revenue is a measure of the profitability of a venture after accounting for all costs. In a survey of nearly 200 senior marketing managers, 91 percent responded that they found the "net profit" metric very useful...

. This is calculated in the following way: the net profit is divided by the total number of owned shares, producing a notional
Notional
Notional is an American Thoroughbred racehorse. He was sired by In Excess and out of the mare Truly Blessed. His damsire, French Deputy, is a son of the 1997/98 Leading sire in North America, Deputy Minister....

 value per share, known as a dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

. The individual's share of the profit is thus the dividend multiplied by the number of shares that they own.

Early joint-stock companies


Finding the earliest joint-stock company is a matter of definition. Around 1250 in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 at Toulouse
Toulouse
Toulouse is a city in the Haute-Garonne department in southwestern FranceIt lies on the banks of the River Garonne, 590 km away from Paris and half-way between the Atlantic Ocean and the Mediterranean Sea...

, 96 shares of the Société des Moulins du Bazacle, or Bazacle Milling Company
Bazacle
The Bazacle is a structure in and on the banks of the River Garonne in the French city of Toulouse.It originated as a ford across the river Garonne, used from the 12th century onwards. The name bazacle comes from the Latin word vadaculum, meaning "little ford"...

 were traded at a value that depended on the profitability of the mills the society owned. The Swedish
Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

 company Stora
Storå
Storå may refer to the following locations:*Storå in Tysfjord municipality, Nordland, Norway*Storå in Lindesberg municipality, Västmanland, Sweden*Storå, a creek in Denmark's West Jutland*Storå is also the Swedish name of Isojoki in Finland....

 has documented a stock transfer for 1/8 of the company (or more specifically, the mountain in which the copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...

 resource was available) as early as 1288.

In more recent history, the English were first with joint-stock companies. The earliest recognized company was the English (later British) East India Company
East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...

, one of the most famous joint-stock companies. It was granted an English Royal Charter
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...

 by Elizabeth I
Elizabeth I of England
Elizabeth I was queen regnant of England and Ireland from 17 November 1558 until her death. Sometimes called The Virgin Queen, Gloriana, or Good Queen Bess, Elizabeth was the fifth and last monarch of the Tudor dynasty...

 on December 31, 1600, with the intention of favouring trade privileges in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

. The Royal Charter effectively gave the newly created Honourable East India Company (HEIC) a 15-year monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

 on all trade in the East Indies
East Indies
East Indies is a term used by Europeans from the 16th century onwards to identify what is now known as Indian subcontinent or South Asia, Southeastern Asia, and the islands of Oceania, including the Malay Archipelago and the Philippines...

. The Company transformed from a commercial trading venture to one that virtually ruled India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...

 as it acquired auxiliary governmental and military functions, until its dissolution.
Soon afterwards, in 1602, the Dutch East India Company
Dutch East India Company
The Dutch East India Company was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia...

 issued shares, that were made tradeable on the Amsterdam Stock Exchange
Amsterdam Stock Exchange
The Amsterdam Stock Exchange is the former name for the stock exchange based in Amsterdam. It merged on 22 September 2000 with the Brussels Stock Exchange and the Paris Stock Exchange to form Euronext, and is now known as Euronext Amsterdam.-History:...

. An invention that enhanced the ability of joint-stock companies to attract capital from investors as they now easily could dispose their shares.

During the period of colonialism
Colonialism
Colonialism is the establishment, maintenance, acquisition and expansion of colonies in one territory by people from another territory. It is a process whereby the metropole claims sovereignty over the colony and the social structure, government, and economics of the colony are changed by...

, Europeans, initially the British, trading with the Near East for goods, pepper and calico for example, enjoyed spreading the risk of trade over multiple sea voyages. The joint-stock company became a more viable financial structure than previous guilds or state-regulated companies. The first joint-stock companies to be implemented in the Americas were The London Company
London Company
The London Company was an English joint stock company established by royal charter by James I of England on April 10, 1606 with the purpose of establishing colonial settlements in North America.The territory granted to the London Company included the coast of North America from the 34th parallel ...

 and The Plymouth Company
Plymouth Company
The Plymouth Company was an English joint stock company founded in 1606 by James I of England with the purpose of establishing settlements on the coast of North America.The Plymouth Company was one of two companies, along with the London Company, chartered with such...

.

Transferable shares often earned positive returns on equity, which is evidenced by investment in companies like the British East India Company
British East India Company
The East India Company was an early English joint-stock company that was formed initially for pursuing trade with the East Indies, but that ended up trading mainly with the Indian subcontinent and China...

, which used the financing model to manage trade in India. Joint-stock companies paid out divisions, dividends, to their shareholders by dividing up the profits of the voyage in the proportion of shares held. Divisions were usually cash, but when working capital
Working capital
Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is...

 was low and it was detrimental to the survival of the company, divisions were either postponed or paid out in remaining cargo which could be sold by shareholders for profit.

However, in general, incorporation
Incorporation (business)
Incorporation is the forming of a new corporation . The corporation may be a business, a non-profit organisation, sports club, or a government of a new city or town...

 was only possible by Royal charter
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...

 or private act
Local and Personal Acts of Parliament in the United Kingdom
Local and Personal Acts of Parliament are laws in the United Kingdom which apply to a particular individual or group of individuals, or corporate entity. This contrasts with a Public General Act of Parliament which applies to the entire community...

, and was limited owing to the government's jealous protection of the privileges and advantages thereby granted.

As a result of the rapid expansion of capital intensive enterprises in the course of the industrial revolution
Industrial Revolution
The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, transportation, and technology had a profound effect on the social, economic and cultural conditions of the times...

 in Britain, many businesses came to be operated as unincorporated associations or extended partnerships, with large numbers of members. Nevertheless, membership of such associations was usually short term, so their nature was constantly changing.

Consequently, registration and incorporation of companies without specific legislation was introduced by the Joint Stock Companies Act 1844
Joint Stock Companies Act 1844
The Joint Stock Companies Act 1844 was an Act of the Parliament of the United Kingdom that expanded access to the incorporation of joint-stock companies....

. Initially companies incorporated under this Act did not have limited liability, although it became common for companies to include a limited liability clause in their internal rules. In the case of Hallett v Dowdall the English Court of the Exchequer held that such clauses bound people who have notice of them. Four years later the Joint Stock Companies Act 1856
Joint Stock Companies Act 1856
The Joint Stock Companies Act 1856 was a consolidating statute, recognised as the founding piece of modern United Kingdom company law legislation.-Overview:...

 provided for limited liability for all joint-stock companies provided, amongst other things, that they include the word "limited" in their company name. The landmark case of Salomon v A Salomon & Co Ltd established that a limited liability company had a distinct legal personality, separate from that of its individual shareholders.

Joint-stock companies globally


The principles of a joint-stock company are used to organize many contemporary corporate
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

 entities, such as:
  • American business corporation
    Corporation
    A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...

    ,
  • British public limited company
    Public limited company
    A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....

     (plc),
  • Finnish Osakeyhtiö
    Osakeyhtiö
    Osakeyhtiö, literally a "stock company", is the Finnish equivalent of a limited company or Gesellschaft mit beschränkter Haftung . It is abbreviated to Oy and is used either before or after the company's name, sometimes with the addition of the Finland-Swedish equivalent Ab...

     (oy),
  • French Société par actions,
  • Russian Акционерное общество (AO),
  • German Aktiengesellschaft
    Aktiengesellschaft
    Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e. owned by shareholders, and may be traded on a stock market. The term is used in Germany, Austria and Switzerland...

     (AG),
  • Swedish Aktiebolag
    Aktiebolag
    Aktiebolag is the Swedish term for "limited company" or "corporation". When used in company names, it is abbreviated "AB" or "Ab"...

     (AB),
  • Italian Società per Azioni (S.p.A.),
  • Spanish Sociedad Anónima (S.A.),
  • Dutch Naamloze Vennootschap
    Naamloze Vennootschap
    is the Dutch term for a public limited liability company. The company is owned by shareholders, and the company's shares are not registered to certain owners, so that they may be traded on the public stock market....

     (NV),
  • Turkish Anonim Şirketi (A.Ş.),
  • Polish Spółka Akcyjna (SA),
  • Romanian Societate pe acțiuni (S.A.),
  • Japanese kabushiki kaisha
    Kabushiki kaisha
    is a type of business defined under Japanese law.-Usage in language:Both kabushiki kaisha and the rendaku form kabushiki gaisha are used. The "K" spelling is much more common in the names of companies and in English-language legal literature, whereas the "G" pronunciation is dominant in...

     (株式会社),
  • South Korean jusik hoesa (주식 회사).raj, and
  • Ukrainian Акціонерне товариство (AТ).

See also

  • Aktieselskab
    Aktieselskab
    An aktieselskab is the Danish name for a stock-based corporation. An aktieselskab can be both publicly traded and private.-Liability:...

  • Limited liability company
    Limited liability company
    A limited liability company is a flexible form of enterprise that blends elements of partnership and corporate structures. It is a legal form of company that provides limited liability to its owners in the vast majority of United States jurisdictions...

  • Legal entities
    Legal personality
    Legal personality is the characteristic of a non-human entity regarded by law to have the status of a person....

  • Economy of Russia
    Economy of Russia
    The economy of Russia is the eleventh largest economy in the world by nominal value and the sixth largest by purchasing power parity . Russia has an abundance of natural gas, oil, coal, and precious metals...

  • Types of companies

External links