Types of Businesses- Joint Stock Companies

What are joint stock companies?

Joint stock companies are owned by shareholders, there is usually a separation between ownership and management.

The company is divided up into many shares which are held by people or groups. They elect a board of directors who oversee the day to day running of the business, these people have a duty to protect the interests of the shareholders. The board of directors can also appoint others to look after the day to day running of the business as well as other employees.

Joint stock companies benefit from limited liability, this means that should the business fail the shareholders liability is only limited to the price they paid for the shares or has left to pay. e.g. if the shareholder bought 1 share at $10, and paid $8 for it, should the business fail the shareholder will only have to pay $2 for it (the remainder of his share).

In most countries there are two types of companies that issue stock.

1. Private limited company- which is owned by private individuals and the shares are not sold on the market
2. Public limited company- owned by individuals in the public, the shares can be bought and sold on the stock-exchange.
   

So what the benefits of joint stock companies?

1. limited liablity - see above
2. easier to raise finance as they can sell shares to raise capital, and they are usually larger so have more credibility (not always true), and they can also raise finance through debenture or bond issues
3. can take advantage of specialised knowledge of managers

Sounds perfect right? Again there are downfalls

1. they have to publish accounts yearly
2. they are more expensive to set up and have more requirements under the law
3. original owners can lose control of the business
4. ownership and management are separate and often conflict of interests may occur.

Pretty straight forward stuff, next time co-operatives!