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| | Joint-stock companies (12th Jan 24 at 4:24pm UTC) | | A joint-stock company is a type of company that is granted legal personality status from the moment it is established, and is commonly used for running businesses. The company’s share capital consists of the total contributions of its shareholders. Shares may be subject to public trading, providing an incentive to investors, who are needed for further business development. At the moment the company is formed, the shareholders may declare it to be a close company, meaning that shares can be transferred to any person but the current shareholders must have first refusal. At the moment of incorporation, shares may be issued in a number of different forms, including bearer stock, registered stock or preference stock.
Functions of a joint-stock company
The ultimate goal of all companies is to run a business and generate profit. A joint-stock company is a useful company type for attracting investors and additional funding, while in return the investor is given shares granting the right to receive dividends. Frequently, joint-stock companies grow into large corporations with significant capital. They are most commonly found in the financial services sector — credit institutions, banks, insurance companies and other payment and financial institutions are very often joint-stock companies. These businesses obviously require financial stability and plenty of available funds in case of necessity.
Advantages and disadvantages of a joint-stock company
The advantage of this kind of company formation relates to liability thresholds. As a general principle, shareholders in a joint-stock company are liable only up to the value of their contribution to the company. So, if the company becomes insolvent, the creditors cannot seek compensation or require damages from the shareholders personally. Conversely, the company is not liable for its shareholders` debts. The strict line between the shareholders` and the company`s liabilities is based on the principle of the legal person.
Another advantage is the ability to raise the necessary funds for starting up the business. At the startup stage, it can be difficult for a company to obtain the initial capital. However, when a few business partners make an investment to achieve a single goal, the business startup plans are likely to be more realistic. Meanwhile, common investment is directly related to common profit-sharing. So if the company makes a profit, dividends should be paid proportionally to each shareholder.
The functions and competence of a company management board is governed by the applicable commercial law and the company’s articles of association. A joint-stock company usually involves a two-level supervisory board, and while this helps control decision making in the daily course of business and avoid mistakes, a complicated management structure may impair the speed of decision making at times when a quick reaction is necessary.
If you plan on setting up a business in the form of a joint-stock company, we strongly recommend that you consult us first. We can provide you with full, detailed information regarding tax planning options and the most efficient corporate structure for your business.
Types of joint-stock company
Joint-stock companies can be public as well as private. Private companies are companies that belong to private persons, regardless of whether they have one shareholder or many. In a private company, stock can be transferred to anyone the current shareholder chooses, and usually shares are transferred under the terms of a share purchase agreement. Shareholder status grants the right to participate actively in the business and in the decision-making process.
Public companies do not necessary belong to the government or another state institution. A public joint-stock company is a company whose shares can be freely traded on the open market through a stock exchange, and so the list of shareholders is not fixed and can be changed in a flexible manner. One of the leading stock exchanges is called NASDAQ. A stock exchange operates as an intermediary and publishes information regarding the stock’s value. When a public company requires more funds, it may issue additional shares and offer them for trade. Accordingly, more funds will be invested into the company. Anyone can track the stock’s value on a public website, and this provides an objective indicator of the company`s financial status. For instance, if the company is not profitable and is likely to run into difficulties, the stock value will drop.
The term public company can also be used to refer to a company that belongs to the government or is fully or partially controlled by a public institution. This classification is based on the source of the company’s funds. Frequently, companies that provide public services such as heating, water, sewerage and public transport are established in the form of joint-stock companies, and such companies belong to the local municipality. In some cases, 51% of a public joint-stock company’s shares belong to the government and the remaining stock is offered for public trading on the stock exchange.
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