There are multiple forms in which a business can be incorporated like proprietorship, partnership or joint stock company. A joint stock company, as the name suggests, is jointly owned by a large number of owners in the proportion of their contribution towards the total capital of the company. The total capital of the company is divided into smaller units called shares. This form of business is favourable  when huge amounts of funds are required as a single owner or a group of people can raise limited funds only as is the case of proprietorship and partnership. In words of Prof. L.H. Haney,

“A Joint Stock Company is a voluntary association of individuals for profit, having a capital divided into transferable shares, the ownership of which is the condition of membership.” 

Elaborating the definition above, a joint stock company is an association of members who are willing to share profits and losses and cohesively invest their funds in the company. The shares of a joint stock company are transferable, i.e., these shares can be bought and sold in the secondary market. In the case of a private company, there are certain restrictions but there are clauses for transfer of shares. 

Features

Joint Stock Company is one of the most popular and desired forms of business and following characteristics of company differentiate it from other traditional forms:

  1. Incorporation: A company gets incorporated after it is registered under the Companies Act, 2013. According to this act, it is mandatory for all the joint stock companies to get themselves registered with the Registrar of Companies to legally commence business.
  2. Separate Legal Entity: In the eyes of the law, a joint stock company is a separate unit than its shareholders and management. It has a separate existence in the eyes of law
  3. Artificial Person: Created under the provisions of Companies Law, a joint stock company has a special identity as an artificial person. It has gained the title of an artificial person since it can’t perform the basic human functions like eating, sleeping, breathing, etc but it has the authority to sign and get into contracts with third parties in its own name. 
  4. Perpetual Existence: Unlike partnership or proprietorship, the life of a joint stock company is not affected by the admission or withdrawal of its members. Since it is created by law, it can only be dissolved by law. Death, insolvency or quitting of any member will not result in the dissolution of the joint stock company.
  5. Limited liability of shareholders: The most attractive feature of this form of business is the limited liability of its shareholders. The personal assets of the owners cannot be claimed in case the company fails to repay its debt as there is in the case of other two most common business forms. 
  6. Common Seal: After incorporation, every company has a common seal (a stamp) which can be used to enter into contracts by a company. A company is only bound to the contracts that carry its seal along with the signatures of its directors. 
  7. Transferability of shares: the shares of a joint stock company can be transferred easily from one shareholder to another. There are some conditions in case of a private company applied to transfer of shares whereas the shares of a public company are easily transferable from one person to another. The market where these shares are sold and purchased is called Stock Exchange.

Merits

The popularity of joint stock companies has increased since they offer the advantage of raising more capital and a clear distinction between the firm, its management and its owners. To understand this in depth, let’s look at the various advantages/ merits of a joint stock company.

  1. Limited liability: In a joint stock company, the liability of its shareholders is limited to the unpaid amount of the shares allotted to them which means that their personal assets are not under the risk of being claimed in case of the insolvency of the company. This is one of the major advantages of incorporating a company. This benefit is not enjoyed by sole proprietorship or partnership form of business. 
  2. Large amount of funds: one of the major drawbacks of other forms of business is limited funds.There is a limit as to how much money a single owner or a group of partners can raise. This problem is solved by a joint stock company. The capital that can be raised in a company is more than any other form as many people pool in their funds. Although there is a limit of 200 members in a private company, the number of shareholders in a public company can be unlimited, therefore, large funds are available.  
  3. Perpetual Succession: The life of a joint stock company is never ending. Members may come, members may go, but the company will go on forever. In other forms, the business life is intact with the life and will of its owners and that is a major drawback that restricts their growth.
  4. Transferability of Shares: People are hesitant when it comes to blocking their money in long term funds as huge risk is involved. However, the shares of a joint stock company are easily transferable. This allows people to invest in the shares of a company and then sell off their shares when it is profitable.
  5. Efficient Management: In a joint stock company, owners are separate from the management and the top executives are appointed cohesively by the shareholders so they make sure that most efficient people are selected who will manage the company effectively and increase the wealth of shareholders eventually.

Types

A joint stock company can be differentiated on the basis of liability, number of members or on the basis of ownership. The different types of companies are as follows:

On the basis of liability:

  1. Limited Liability: a company in which the liability of its members is limited up to the unpaid amount on their shares. This is the most common type of company seen in practice.
  2.  Unlimited Liability: when the liability of shareholders is unlimited just like in the case of partnership. This type of company is rarely found in practice at present.
  3. Limited Liability by Guarantee: when the liability of the shareholders is limited to the level of amount guaranteed by them. 

On the basis of number of members:

  1. Private Company: a private company is the one in which the shares are issued to a handful of investors and the subscription of shares is not available to outsiders.
  2. Public Company: a public company is the one in which the general public can subscribe to the shares of the company and there is no limit on the number of shareholders.

On the basis of ownership:

  1. Government Company: a company whose 51% or more stake is owned by the Central Government, State Government, or partially by both, is called a government company. The government has a major role in its management.
  2. Non-government company: A company that is owned by private entities is called a non-government company.