What is a Joint Stock Company?

John Lister

A joint stock company is a business set-up that combines elements of a partnership and a corporation. It is owned by shareholders who are able to sell their shares to another party. Unlike most companies with shares, this type of company is not incorporated and thus not legally classed as a separate entity. The set-up has both advantages and disadvantages for those involved.

A joint stock company combines elements of a partnership and a corporation.
A joint stock company combines elements of a partnership and a corporation.

Most forms of business fall into one of two categories. A sole trader or partnership consists of one or more people owning a company. The company is not classed as a legal entity, meaning that any legal or financial action taken against the company will in fact be taken against the owners themselves. If the company is in debt, the owners may be forced to pay the debts from their own resources.

The second category is the incorporated company, better known as a corporation. This is usually owned by stockholders, though this stock isn't necessarily publicly traded. Because it is a corporation, it is treated as a separate legal entity. The most significant result of this is that the owners have limited liability meaning they cannot be held financially responsible for the company's debts.

The joint stock company straddles the two categories. It is owned by two or more stockholders but is not incorporated. Because it is not a corporation, the owners do face liability for the company's debts. With this particular set-up, though, the liability is limited to the face value of their stock, that is, the money they originally put in to the business.

The major difference between a joint stock company and a partnership is the stock transfer situation. With the first type, partners can usually sell their stock at any time, either to another partner or to anyone outside the firm. With a partnership, partners often need the consent of other partners to sell on their stock and depart the company. Joint stock companies will also survive a partner's death, with their stock passing on through their inheritance, while a partnership is effectively dissolved if a partner dies.

There are several variants of the joint stock company around the world. This can cause confusion because of regional variations. The most notable of these is the limited liability partnership. In the United States this is classed as a partnership and has most of the characteristics of a joint stock company. In the United Kingdom, a limited liability partnership is legally classed as a corporation and thus a separate legal entity.

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