Joint stock company
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A joint stock company (JSC) is a type of business entity: it is a type of corporation or partnership. Certificates of ownership or stocks are issued by the company in return for each contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others.
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This article or section deals primarily with the United Kingdom and does not represent a worldwide view of the subject. Please improve this article or discuss the issue on the talk page. |
In Britain, and elsewhere, there are two kinds of joint stock company. The private company (sometimes called an 'unlisted company') is one in which the shares are not offered for sale on the open market. The shares are usually only held by the directors and Company Secretary. The purpose of shareholding in such a company is to confer the financial protection of limited liability upon the owners.
In contrast, a public company (sometimes known as a 'listed' company) offers its shares for sale upon the open market - they are 'listed' upon the stock exchange. In Britain, they are usually distinguished by the letters 'PLC' after their name. The public company can raise part of its capital by a share issue, but the directors have no control over the sale or purchase of its shares. Thus, a public company can be 'taken over' by another through the act of purchasing a controlling interest in the shareholding.
Although not, strictly speaking, a joint stock company, a third kind of company is found in Britain. This is known as a guarantee company, and is only formed by societies and organisations for charitable purposes (e.g. sports clubs, hobby groups etc.), as there is no way that a profit can be distributed. No shares are issued, but a number of named directors 'guarantee' a specified amount of debt for which they agree to be liable. A guarantee company is usually the first step towards the creation of a charitable trust.
In Russia (the former Soviet Union) the term JSC is used for ex-State Enterprises that are now under a more free business regime. Their business conditions are somewhat different from Joint Stock Companies in western countries.
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[edit] Advantages
Ownership of stock confers a large number of privileges. The company is managed on behalf of the shareholders by an elected Board of Directors. Consequently, the share owner may attend an annual general meeting, and vote for directors and sometimes the principal officers. The shareholders receive an annual report, and vote upon the yearly audited set of accounts. Other resolutions upon important decisions can be put to them. There are other meetings, which may be called, either regularly or by special resolution of either the Board or the shareholders themselves.
Of course, individual shareholders can sometimes stand for directorships within the company, should a vacancy occur, but this is unusual.
The shareholders are usually liable for any 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 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. This is calculated in the following way: the net profit is divided by the total number of owned shares, producing a notional value per share, known as a dividend. The individual's share of the profit is thus the dividend multiplied by the number of shares that they own.
[edit] History
The English started joint stock companies. The earliest recognized company was the Virginia Company.[1] [2] The British East India Company, sometimes referred to as "John Company", was one of the more famous joint-stock companies. It was granted an English Royal Charter by Elizabeth I on December 31, 1600, with the intention of favouring trade privileges in India. The Royal Charter effectively gave the newly created Honourable East India Company (HEIC) a 21 year monopoly on all trade in the East Indies. The Company transformed from a commercial trading venture to one that virtually ruled India as it acquired auxiliary governmental and military functions, until its dissolution in 1858.
Soon afterwards in 1602, the Dutch East India Company issued shares on the Amsterdam Stock Exchange.
During the period of colonialism, the joint stock company 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 Virginia Company and The Plymouth Company.
Transferable shares often earned positive returns on equity, which is evidenced by investment in companies like the British East India Company, 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 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 in the firehouse
It also made it affordable to support early colonists in America. Jamestown, for instance, was financed by the Virginia Company. It is because of joint stock companies that the colonization and settlement of America was made possible.
However, in general, incorporation was only possible by Royal charter or private act, and was limited owing to government's jealous protection of the privileges and advantages thereby granted. As a result, many businesses came to be operated as unincorporated associations with possibly thousands of members. Any consequent litigation had to be carried out in the joint names of all the members and was impossibly cumbersome.
In the UK, registration and incorporation of companies without specific legislation was introduced by the Joint Stock Companies Act 1844.
[edit] Joint stock companies today
The principles of a joint stock company are used to organise many contemporary corporate entities, such as the American business corporation, the British public limited company, the French société anonyme, the German Aktiengesellschaft, the Italian Società per Azioni (S.p.A.) the Japanese kabushiki kaisha, and the South Korean jushik hoesa. In some countries, "joint stock company" is used as an English translation for business forms that more closely resemble corporations.
- The Texas Joint-Stock Company has numerous vast differences when compared to a general partnership which are as follows:
- Has all the corporate characteristics, except limited liability of shareholders.
- Formed by private contract creating a separate entity.
- Recognized by a specific Texas State Statute, but not regulated by the Uniform Partnership Act.
- A shareholder cannot bind other shareholder concerning liability, etc., [3]
- While unincorporated joint stock companies still exist in some areas, they are generally considered an unattractive alternative to limited liability entities. Joint stock companies have recently been used in some fraudulent asset protection schemes in Texas. [4]
- JSC is a designation often used in the names of Russian companies, meaning their version of the Joint Stock Company. For instance Kurganmashzavod JSC, Tulamashzavod JSC for the ex-state factories at Kurgan and Tula respectively (Mashzavod is a Russian acronym for `machinery-building plant').
[edit] Joint Stock Companies in Russia
A joint-stock company (AO) is a company with charter capital divided into a defined number of shares with par value. Shareholders are not liable for the company's liabilities but bear the risk of losses arising from the company's activity only for the par value of their shares. There are two types of joint-stock companies:
- Open joint-stock company (otkrytoe aktsionernoe obschestvo - OAO) is a legal entity, whose shares may be publicly traded without permission of other shareholders. OAO can distribute its shares to an unlimited number of shareholders and sell them without limitations. The statutory minimum charter capital is 100,000 Russian roubles.
- Closed joint-stock company (zakrytoe aktsionernoe obschestvo - ZAO) is a legal entity, whose shares are distributed among a limited number of shareholders. The maximum number of shareholders is 50. The statutory minimum charter capital is 10,000 Russian roubles.
Founders of a joint-stock company sign a written agreement for its formation, in which procedures necessary for the setting up of the company are carried out, the size of the authorized capital, types and categories of shares to be allocated between founders, amounts to be paid for the shares, the order of settlement of payments, rights and responsibilities of founders in connection with the formation of the company. The constitutive document is the organisation charter, which contains the following information: full and brief names of the company, address of the location of the company’s office, company’s type (OAO or ZAO); quantity, par value, categories of shares (ordinary, preferred) and types of preferred shares to be allocated; rights of shareholders of each category of shares, the sum of the authorized capital, structure and competence of company’s management bodies and boards, and procedures of decision-making process, order of preparation and conducting of shareholders’ general meeting, including list of issues, which are to be decided upon by qualified majority or unanimously, information about subsidiaries or representative offices; other information as prescribed in the federal law "On Joint-Stock Companies".
Joint-stock companies are required to register the issue of shares with Federal Securities Market Commission. This is to enable the shares to be traded either publicly (for OAO) or among a limited number of persons (for ZAO). For registration a set of documents should be submitted to the Federal Securities Market Commission. The procedure usually requires 30 days from the moment of receipt of documents by the registration agency.
[edit] Limited liability companies
Limited liability company (Russian: Общество c ограниченной ответственностью, Obschestvo s ogranichennoy otvetstvennostju, abbreviated OOO) is an entity with capital stock divided into “parts” (in Russian – dolia, 'share'), the size of which are determined by the formation documents. A Dolia is not a security and it may not be treated as a property in strict juridical sense. It is rather treated as a property right. The owner of a dolia is not called a shareholder, but a “participant” of the OOO. The company's capital is formed by the contributions of the participants. Number of participants may not be more than 50. The statutory minimum charter capital is 10,000 Russian roubles. An OOO may not have another commercial organisation consisting of one participant as its only participant. Participants in a limited liability company are not responsible for the company’s liabilities and are responsible for losses only up to the value of their parts.
The founders of an OOO sign the formation agreement and ratify the organisation charter of the company. The formation agreement and the organisational charter are the formation documents of the company.
In the formation agreement founders of OOO commit themselves to form the company and determine the order of joint activities related to its formation. The agreement also determines the register of founders of the company, the amount of the authorized capital, and the size of each founder’s part in it, the procedure and terms of paying in contributions at the formation of the company, the responsibility of founders arising from violation of terms and procedures of paying in contributions, conditions and the order of profit distribution between participants, the constitution of company’s management bodies and boards and the order of retirement of participants.
The most popular forms of business organisation are OOO and ZAO.
[edit] Joint Stock Companies in Ukraine
- ZAT (Закрите акцiонерне товариство, ЗАТ) - Ukrainian "Private joint-stock company"
- VAT (Вiдкрите акцiонерне товариство, ВАТ) - Ukrainian "Public joint-stock company"
- DAT (Державне акціонерне товариство, ДАТ) - Ukrainian "National joint-stock company"
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[edit] External links
[edit] Bibliography
- Davis, J.S. (1917). Essays in the Earlier History of American Corporations, vols. 1–2, Cambridge, MA: Harvard University Press.
- Ekelund, R.B. & Tollison, R.D. (1980). "Mercantilist origins of the corporation". Bell Journal of Economics 11: 715–720. doi:.
- Fisher, F. J. (1933). "Some experiments in company organization in the early seventeenth century". Economic History Review 4: 177–194.
- Freedman, C.E. (1979). Joint-Stock Enterprise in France 1807–1867: From Privileged Company to Modern Corporation. Chapel Hill: University of North Carolina Press.
- Hunt, B.C. (1936). The Development of the Business Corporation in England, 1800–1867. Cambridge, MA: Harvard University Press.
- Lobban, M. (1996). "Corporate identity and limited liability in France and England 1825-67". Anglo-American Law Review 25: 397.
- Mayson, S.W et al. (2005). Mayson, French & Ryan on Company Law, 22nd ed., London: Oxford University Press. ISBN 0-19-928531-4.
