Historically, corporations may trace their roots back to the joint-stock enterprise. The importance of Joint-Stock company can be gauged by the fact that each shareholder in a joint-stock firm has a certain number of shares that an investor owns directly related to the amount of stock they have acquired.
The purpose of creating a joint-stock company is to pool resources to support projects that would be unfeasible for a person or even authorities to undertake independently. The shareholders of a joint-stock company are anticipated to receive a cut from the profits generated by the businesses.
Attributes of a Joint-Stock Company
Created Legal Entity
A corporation is a separate legal entity that can sue or be sued in its own right. It has the same legal rights and responsibilities as a natural person and can act in many of the same ways. In addition, the law has given it certain privileges exercised by its board of administrators.
However, no organization is subject to every jurisdiction law, privilege, or duty. It is only a concept and does not emerge in any tangible form. Because of this, we refer to it as a fabricated legal entity.
Independent Jurisdiction
A corporation is a distinct legal entity from its shareholders, unlike a sole proprietorship or an affiliated corporation. Once a joint stock company is established, it is treated as a separate entity in the eyes of the law. As a result, a shareholder is immune from corporate debts. Also, the corporation will not rely on any member to operate its businesses.
Corporate Formation
Incorporation is the formal process through which a business enterprise is given the status of a distinct legal entity and is officially established. A joint stock firm cannot avoid registering as required by law. In the absence of incorporation, a business enterprise does not exist.
Endless Succession
The public limited liability company is a creation of the law. Thus, the only method for the business to be dissolved is via the operation of legal processes. Therefore, the existence of a corporation is not at all connected to the lives of the people who make up the firm, even if there is constant turnover among a company's members or investors so that the business continuity will be unaffected.
Limited Legal Responsibility
One of the most significant distinctions between a corporation and a single proprietorship or a collaboration is this. Investors' assets are shielded from the company's debts. A member's private property is immune from being sold off to satisfy the business's obligations.
The responsibility of a shareholder cannot exceed the amount of the investor's due shareholding. He is free of duty if all of his stock is paid for. The debt level is irrelevant here. The company may only sell its assets to satisfy its liabilities. No one can force the club's members to contribute.
Conventional Seal
A corporation is akin to a fictional character. The directors/ authorities are accountable for running the company's day-to-day operations. For this reason, a common seal is used to express acceptance whenever a corporation joins a contract or executes an agreement. The name of the firm is commonly carved on the official seal. Without this official seal and the executives' signatures, a contract cannot bind legally.
Capability of Transferring Shares
The ownership of a joint stock corporation is segmented into individual units that are freely tradable and alluded to as shares. In the event of a public corporation, the stocks can be freely movable, and there are very few limits placed on this practice. Additionally, there are some limitations in a publicly traded corporation, although it is not possible to outright ban share transfers.
Benefits of Joint-Stock Company
- Shareholders of a joint stock company have limited legal capacity for their actions is one of the firm's primary selling points. Their legal responsibility is not greater than the number of unpaid stock dividends. They are urged to participate in joint stock businesses because they do not risk losing money.
- A corporation would often employ executives to oversee the operational aspects of the business. This board comprises highly skilled and competent individuals, which leads to efficient and productive management. Additionally, a corporation often has considerable resources, which enables it to recruit the most talented individuals and specialists in the industry.
Disadvantages of a Joint-Stock Company
- Forming a joint stock corporation is a long and challenging process. This could take a few weeks or longer and is usually rather expensive.
- All publicly traded firms must submit their accounting statements and other papers to the officer under the Companies Law, 2013. Following this, these records become available to the general public. As a result, the corporation can no longer maintain confidentiality.
- Even in its daily operations, a business must comply with many rules, legislation, notices, etc. It's inefficient and limits a company's flexibility.
Joint-Stock Company vs. Public Company
There is a widespread misunderstanding that private limited enterprises are insignificant because of their size and lack of attention. The primary benefit of privately held businesses is that their management does not have to explain to investors or submit necessary documentation with the Securities and Exchange Commission.
However, a private firm cannot access the public financial markets and must instead seek finance from private investors. It is commonly held that private businesses aim to reduce their tax burden, whereas public corporations prioritize growing their bottom line for stockholders.
Whereas investors of a joint-stock company are personally liable for an infinite amount of the business's obligations, provided that the firm is not incorporated. This obligation is reduced in the United States through the judicial process of inclusion, and it is reduced to the face worth of the shares possessed by the investor.
In a joint-stock firm, shareholders can sell or trade their shares. Holdings of a public joint-stock corporation can be bought and sold in traditional stock markets. There is no legal restriction on who can buy or sell assets of a private joint-stock corporation; nonetheless, such transactions are typically restricted to close friends and family.
