1. What Is a Joint Stock Company?
2. Classification of Joint Stock Companies and Liability
3. Classification of Joint Stock Companies and Member Count
4. Differences Between Private and Public Companies

An example of a joint stock company today is a business type that is somewhere between a partnership and a corporation. Stockholders of a joint stock company have the same responsibilities and privileges that come with an unlimited partnership.

What Is a Joint Stock Company?

Similar to a public company, a joint stock company can issue shares that trade on a registered exchange. The shares can be bought or sold in the market freely. However, these shares have explicit obligations that do not exist with ordinary or preferred shares. Shareholders have a direct vote in decisions related to company management and have joint liability for any outstanding debts of the company.

The main advantage of a joint stock company is the potential to access substantial sums of money that can be used to invest in the business. The main disadvantage is the risk associated with joint stock ownership. The risk includes personal assets, which may face liquidation if bankruptcy is filed.

Characteristics of a joint stock company include the following:

  • Management of the company is handled by a board of directors.
  • Election of board members takes place at an annual meeting.
  • Election of board members is the responsibility of the shareholders.
  • Shareholders have voting rights and may accept or reject annual reports and audited records.
  • In rare instances, shareholders can stand in for any director vacancies.

Classification of Joint Stock Companies and Liability

There are three classifications of a joint stock company, and they relate to the liability of each.

  • Limited liability provides company shareholders the protection of not having to pay more than the face value of the shares. This is the most common company type selected.
  • Unlimited liability means that shareholders are not protected from fulfilling any debts or obligations of the company. This type of company is known as an unlimited liability company, and the personal assets of the shareholder are not protected.
  • Limited liability by guarantee requires the shareholder to pay a set amount when the company is winding up. The amount is set in the Memorandum of Association. The shareholder may or may not have to share capital. The shareholders will know the amount they have to pay, and it is limited to a certain fixed amount if the company liquidates. Typically, limited liability by guarantee companies promote one of the following:
    • Art.
    • Literature.
    • Sports.
    • Education.

Classification of Joint Stock Companies and Member Count

Private Limited Companies are private companies that restrict the transfer of their shares. Also:

  • Shareholder members are limited to a total of 50.
  • A public invitation is prohibited for the purpose for shares or debentures.

Public Limited Companies require a minimum of seven members to form. There is no maximum number of members. Also:

  • A prospectus must be issued to invite anyone interested in purchasing shares.
  • A certificate of commencement and certificate of incorporation must exist before operating a business.
  • Shareholders can sell their shares in the market.
  • "Limited" (Ltd) must be in the name of the company.

Differences Between Private and Public Companies

There are differences when it comes how private and public companies operate. These differences include:

  • Transfer of Shares
    • Private companies have a restriction on the transfer of shares.
    • Public companies have no restrictions on the transfer of shares.
  • Forming a Company
    • Private companies only require a certificate of commencement.
    • Public companies must have a certificate of commencement and certificate of incorporation.
  • Publications
    • Private companies are not required to publish annual reports and statements.
    • Public companies are required to publish annual reports and statements.
  • Statutory Meetings
    • Private companies do not need to hold statutory meetings.
    • Public companies are required to hold statutory meetings.
  • Statutory Reports
    • Private companies do not have to file statutory reports.
    • Private companies must file statutory reports.
  • Company Names
    • Private companies must use "Private Limited," or Pvt. Ltd. as part of the company name.
    • Public companies must use "Limited" or Ltd as part of the company name.

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