Joint Stock Companies: Definition, Types, and Formation Procedures
What Is a Joint-Stock Company?
A joint-stock company (JSC) is a form of company or joint venture involving two or more individuals that own shares of stock in the business. Certificates of ownership ("shares") are issued by the corporation in return for each financial contribution, and the shareholders are free to relocate their ownership interest at any time by selling their shares to others.
At present, company law the existence of a joint-stock company is often identical with incorporation (i.e. possession of authorized personality separate from shareholders) and limited liability (meaning that the shareholders are only liable for the company's debts to the value of the money they invested in the company). And as an outcome joint-stock company is generally known as corporations or limited companies.
Some jurisdictions still provide the opportunity of registering joint-stock companies without limited liability. In the United Kingdom and other countries which have adopted their form of company law, these are known as unlimited companies. In the United States they are, to some extent confusingly known as joint-stock companies. (Company means a company formed and registered under this act or an existing company. – Company Act 1994)
Types of Join Stock Company
- Chartered Company: The companies that form by the order of the king of England are called the charter company. These companies were formed before 1844. For example, East India Company, Chartered Bank of England, the charter of the British South Africa Company, given by Queen Victoria (More information here)
- Statutory Company: Companies that are formed by the order of the President, or by the Legislative Committee or by bill of Parliament are called Statutory Company. These Companies are operated by those laws. For example, municipal councils, universities, central banks and government regulators, Central Bank. (More information here)
- Registered Corporation: Companies that are formed under the prevailing law of the company are called the registered company. The corporation that has filed a registration statement with the SEC prior to releasing a new stock issue. It is two types-
i) Unlimited Company: The liabilities of the shareholders of this company are unlimited. For example, British all-terrain vehicle manufacturer Land Rover, GlaxoSmithKline Services Unlimited.
ii) Limited Company / limited corporation: The liabilities of the shareholders are limited. For example, Charitable organisations, Financial Services Authority. This liability of a company can be of two types.
a) By Guarantee
b) By share value. The company limited by share can be of two types.
• Private Limited Company, where the number of shareholder ranges from two to fifty. The share of these companies can’t be traded in the stock market.
• Public Limited Company, where the number of shareholder ranges from seven to share limitation. The share of the public limited company is traded in the stock market.
Procedure of Formation of a Joint Stock Company
In "Bangladesh" perspective (but the moreover same process all over the world) Joint Stock Company is formed, registered and guided by the Companies Act 1994. The promoters by themselves or by their appointed person (advocate, consultancy firm, or consultant) undertook the task of formation. However, the task of formation could be discussed in steps.
1. Promotional Steps:
The person who undertook the task of formation is called promoter or entrepreneur. For Public Limited Company there should be at least seven (7) and for Private Limited company, there should be at least two (2) promoters. These promoters undertook the following tasks:
a) Planning: Here the promoters decide about the objectives, area, type, capital structure of the new business. Based on these factors, the promoters go forward.
b) Feasibility Analysis: Here the promoters undertook the feasibility analysis for the new venture: both from existing and potential viewpoint. Promoters undertook different tools like SWOT (Strength, Weakness, Opportunity and Threat) Analysis; Competitive Analysis, etc. Being assured of the potentiality of the business the promoters go for the further.
c) Naming the Company: The name of the company should be such that is not used by any other existing company; it is not a name of the King or Queen or President. The Public Limited Company should use (pvt.) Limited and the Public Limited Company must use Limited at the end of the company name. The promoter upon deciding the name, they submit the name in black and white for Clearance in the registrar office. The registrar upon verifying the uniqueness of the proposed name gives clearance of using the name.
2. Registration or Incorporation:
To incorporate the new company the promoters needs go through the following steps:
a) Collecting Registration Form and Filling it up: The promoters have to collect the registration form and other papers for a fee from the registrar office. Then they should fill up it by themselves or should take the help of the consultants or advocates.
b) Preparing Documents and Submitting for Registration: The promoters have to submit the filled-up form with fees and the following documents in the registrar office:
• Memorandum of Association
• Articles of Association
• Capital Structure of the proposed Company
• List of Directors and the amount of the sponsored share they purchased
• Declaration regarding the proposed name of the company
• Declaration of an advocate or chartered accountant or any director of a proposed company that the company has followed all the rules and regulations of Company Act 1994.
The registrar being satisfied on the paper submitted for the proposed company issues' Certificate of Incorporation. On getting that certificate the Private Limited Company can start its business but the Public Limited Company has to go to another step to start its business.
c) Obtaining Certificate of Commencement: Here the promoters should make the Prospectus for the company. This prospectus needs to be published in the daily newspaper. To get the Certificate of Commencement, the promoters need to submit the following documents to the registrar:
• A copy of Prospectus
• Name, address, designation, occupation, etc. of Directors
• Directors’ written Letter of Agreement that they want to work as director of that company.
• Declaration that the directors have fully paid the minimum amount of sponsor share.
• Declaration by the company secretary or other authorized person that the above affairs have maintained all rules and regulation of Company Act 1994.
The registrar being satisfied on the paper submitted for the proposed company issues' Certificate of Commencement. On getting that certificate the Public Limited Company can start its business.
3. Flotation Stage
If the sponsor directors are unable to provide the adequate capital, public limited company can float their share in the capital market (Stock Exchange) to get required capital. By this time, the company can do its other functions.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.