Definition: A joint stock company is a legal association between individuals that creates a new entity for business purposes. It is a way to incorporate a given business with two or more shareholders.
What Does Joint Stock Company Mean?
Joint Stock Companies (JSC) are different depending on the country where they are registered in. In the U.S., JSCs are considered a legal form of association for businesses where different individuals or other business entities, referred to as shareholders, provide a certain amount of capital to fund operations and shares are issued in proportion to each individual contribution.
They are considered unlimited liability entities, which means shareholders are personally liable for all the companies debts and financial commitment. This means in practice, differently from limited liability companies, that there is a possibility for shareholder’s assets being seized to pay for unfulfilled financial commitments assumed by the JSC. Contrary to U.S. laws, in the U.K., Joint Stock Companies are considered limited liability entities.
On the other hand, shares issued can be freely transferred to third parties and they can be traded either privately or publicly through JSCs. Nevertheless, in both countries, the company’s management is often formed by a formal Board of Directors or certain elected directors.
Example
Larry and Clark are the founders of a business called Quick Paint. The business provides an express painting service to vehicle owners that have experienced minor crashes and need quick repairing and painting. They have been operating as individuals and since the business has grown rapidly they decided to incorporate the venture through a Joint Stock Company.
The articles of association state that Larry owns 70 shares of the JSC and Clark the remaining 30 shares. The business was funded with $30,000 in paper and it also stated that Clark will be the Chairman of the Board of Directors. After a few years in business, Larry decided to sell 10 of his shares to a friend of his, to diversify his investments. He did this freely since Joint Stock Companies offer this possibility.
