Joint stock company

A joint stock company is a special kind of partnership. Such a company has a common capital called the stock. The partners in the company are called shareholders, since they receive shares for their contributions to the stock. Shares express ownership interest and decision making power in the company, and shareholders are free to transfer their shares to someone else without needing consent of the other shareholders. While a normal partnership also has ownership interest, the difference is that in a partnership, interest can only be transferred to someone else if all the partners agree to it.

A share also represents how much of the profit each shareholder receives. Since a joint stock company is not necessarily a corporation, a share also represents how much of the loss each shareholder is liable for. As an example, a shareholder holding a 20% share in the company would receive 20% of the company's profits but would also be liable for 20% of the company's debt if it could not be satisfied with company funds.

A for-profit corporation is a joint stock company, except that the shareholders have no liability towards the corporation's debts.

The joint stock company was a financing model that allowed companies to raise large amounts of capital while lowering risk by diversifying contributed capital among multiple ventures. 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.

Transferrable shares often earned positive returns on equity which is evidenced by investment in companies like the East India Company who used the financing model to manage trade in India. Joint stock companies paid out divisions, dividends, to its shareholders by diving 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 market.

In other languages

de:Aktiengesellschaft nl:naamloze vennootschap


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