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 involving two or more legal persons. Certificates of ownership (or stocks) are issued by the company in return for each financial contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others.

In most countries, a joint stock company offers the protection of limited liability; a shareholder is not liable for any of the company's debt beyond the face value of their shareholding.

There are two kinds of joint stock company; the private company kind and the public company. The shares of the former are usually only held by the directors and Company Secretary. The shares of the latter are bought and sold on the open market.

Advantages

Ownership of stock confers a large number of privileges. The company is managed on behalf of the shareholders by a Board of Directors,elected at an Annual General Meeting. The shareholders also vote to accept or reject an Annual Report and audited set of accounts. Individual shareholders can sometimes stand for directorships within the company, should a vacancy occur, but this is uncommon.

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. ^[1]

Disadvantages

While a joint-stock company presents several advantages over a typical business establishment, the burden of creating a JSC typically outweighs that of a Limited liability company (abbreviated LLC). This is especially true in Russia where the abnormally excessive legal and bureaucratic challenges facing prospective entrepreneurs typically dissuade most from starting a JSC.^[2] Without the need to issue shares in an LLC, it makes limited liability companies much more flexible when the need arises for the members to change the charter capital of the company. Furthermore, a limited liability company can collectively or individually hold at least a 10% percent interest in the company’s charter capital and hold the power to request a court expel another participant.^[3] All of this not capable in a joint-stock company, or prohibitively difficult. In any case, the benefits of a joint-stock company are often outweighed by those of an LLC.

Early joint-stock companies

The transfer letter dated 1288 through which bishop Peter of Västerås re-acquires 1/8 of Tiskasjöberg, i.e. Kopparberget. The original can be found at Riksarkivet in Stockholm.

Finding the earliest joint stock company is a matter of definition. The Swedish company Stora has documented a stock transfer for 1/8 of the company (or more specifically, the mountain in which the copper resource was available) as early as 1288. This could be the world's oldest evidence of something resembling a joint-stock company.

In more recent history, the English were first with joint stock companies. The earliest recognized company was the Virginia Company.^[4]

The East India Company (of England, later of the United Kingdom), sometimes referred to as "John Company", was one of the most 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.

The East India Company's flag initially had the flag of England, St. George's Cross, in the corner.

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 the 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 and further popularised by the subsequent Act of 1862. The landmark case of Salomon v A Salomon & Co Ltd established that a limited liability company had a distinct legal personality, separate from that of its individual shareholders.

Joint-stock companies globally

The principles of a joint stock company are used to organize many contemporary corporate entities, such as the American business corporation, the British public limited company, the French société anonyme (S.A.), the German Aktiengesellschaft (AG), the Italian Società per Azioni (S.p.A.), the Polish Spółka Akcyjna (SA), 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.

United States

In the United States, very few unincorporated joint-stock companies remain, due to their undesirability when compared to the advantages of an LLC. However, one could start a JSC using the Texas Joint-Stock Company / Revocable Living Trust model, which would present the following advantages when compared to a general partnership:

1. Has all the corporate characteristics, except limited liability of share holders.
2. Formed by private contract creating a separate entity.
3. Recognized by a specific Texas State Statute, but not regulated by the Uniform Partnership Act.
4. A shareholder cannot bind other shareholder concerning liability, etc. [1]

Russia

There are two types of Russian joint-stock companies:

1. Open joint-stock company (Russian: Открытое акционерное общество (abbreviated OAO), is a legal entity whose shares may be publicly traded without the permission of other shareholders. An 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.
2. Closed joint-stock company (Russian: Закрытое акционерное общество (abbreviated 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 which establishes procedures for creating the company, such as the size of authorized capital, the types and categories of shares, the cost of shares, the order for settling payments, and the rights and responsibilities of the founders. This agreement then becomes the organization charter, which contains information on the name of the company, the locations of offices, the type of company (OAO or ZAO), and other specific information on shares, capital, and so on. The company shares allotted upon founding the company must be fully paid within a year from the company's foundation, unless a shorter period is required by the founding contract. However, at least half of the shares must be paid within three months from the state registration of the company. A share which has been paid does not necessarily give voting rights to its owner.^[5]

Joint-stock companies are required to register the issue of shares with the Russian Federal Securities Market Commission (FSMC) in order to enable the shares to be traded either publicly (for an OAO) or among a limited number of people (for a ZAO). For registration, a set of documents must be submitted to the FSMC, and the procedure usually takes 30 days to enact.

State-owned coprorations

In Russia, a JSC can be wholly or partially owned by the federal government. Such JSCs are different from another type of state-controlled company, the unitary enterprise, which is a commercial organization that operates state-owned assets; state-owned JSCs do not own or operate any state property and the state acts just like an ordinary shareholder.

Some state-owned public corporations were formerly govenment agencies in the Soviet Union which were reorganized into wholly state-owned JSCs in 1992-1993 in order to undergo transition to a fully independent business. The management and the board of directors in such state-owned corporations were appointed by the Council of Ministers/the government, and included top government officials and ministers. The biggest of such corporations were initially incorporated as Russian Joint Stock Companies (RAOs) - the most well-known examples were RAO UES and RAO Gazprom - but have since been converted to public JSCs (OAO), even though their shares remain the property of the government.

Less important or partially owned JSCs are managed through the Federal Agency for State Property Management.

Ukraine

Ukrainian joint-stock companies are similar in function to Russian JSC, however, in some aspects they are closer to more western joint-stock companies. Several predominant joint-stock companies found in Ukraine are listed below.

• DAT (Державне акціонерне товариство, ДАТ)—Ukrainian "National joint-stock company"
• VAT (Вiдкрите акцiонерне товариство, ВАТ)—Ukrainian "Public joint-stock company"
• ZAT (Закрите акцiонерне товариство, ЗАТ)—Ukrainian "Private joint-stock company"

This section requires expansion.

See also

• Aktieselskab
• Limited liability company
• Legal entities
• Economy of Russia
• Types of companies

References

1. ^ http://www.investopedia.com/terms/d/dividend.asp
2. ^ http://doingbusiness.ru/choosing-between-limited-liability-company-llc-or-joint-stock-company-jsc-in-russia.html
3. ^ http://doingbusiness.ru/choosing-between-limited-liability-company-llc-or-joint-stock-company-jsc-in-russia.html
4. ^ http://www.dartmouth.edu/~mkohn/Papers/14.%20Business%20organization.pdf
5. ^ http://www.russianlawonline.com/content/russia-joint-stock-company-charter-capital-shares

• Davis, J.S. (1917). Essays in the Earlier History of American Corporations (vols. 1–2 ed.). 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:10.2307/3003390. 
• Fisher, F. J. (1933). "Some experiments in company organization in the early seventeenth century". Economic History Review 4: 177–194. doi:10.2307/2590601. 
• 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. 

External links

• The History of the Corporate Business Firm