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Joint Stock Company
joint-stock companya form of company in which a number of people contribute funds to finance a FIRM in return for SHARES in the company Joint-stock companies are able to raise funds by issuing shares to large numbers of SHAREHOLDERS and thus are able to raise more capital to finance their operations than could a SOLE PROPRIETOR or even a PARTNERSHIP. Once a joint-stock company is formed then it becomes a separate legal entity apart from its shareholders, able to enter into contracts with suppliers and customers. Joint-stock companies are managed by the BOARD OF DIRECTORS appointed by shareholders. The directors must report on the progress of the company to the shareholders at an ANNUAL GENERAL MEETING where shareholders can in principle vote to remove existing directors if they are dissatisfied with their performance.
The development of joint-stock companies was given a considerable boost by the introduction of the principle of LIMITED LIABILITY which limited the maximum loss which a shareholder was liable for in the event of company failure. This protection for shareholders encouraged many more of them to invest in companies.
There are two main forms of joint-stock company:
- private limited company. Under UK Company Law the maximum number of shareholders in a private company is limited to 50 and the shares issued by the company cannot be bought and sold on the STOCK EXCHANGE. Such companies carry the term limited (Ltd) after their name;
- public limited company. Under UK Company Law there must be a minimum of seven shareholders in a public company, but otherwise a company can have an unlimited number of shareholders. Shares in a public company can be bought and sold on the stock exchange and so can be bought by the general public. Such companies carry the term public limited company (plc) after their name.
Most big firms are public companies since this is the only practical way of obtaining access to large amounts of capital. Although the shareholders are the owners of a public company, very often it is the company's management which in fact controls its affairs. See FLOTATION, SHARE ISSUE.