People hear about various companies on a daily basis. It makes sense to learn more about joint-stock companies. Moreover, it is worth noting that the modern corporation has its origin in the joint-stock company.
As a reminder, a joint-stock company is a business owned by its investors, with each investor owning a share based on the amount of stock purchased.
The term joint-stock company is practically synonymous with a corporation, a public company except for a historical association with unlimited liability. So, a modern corporation is a joint-stock company that has been incorporated to limit shareholder liability.
The major purpose of such companies is to finance endeavours that require a lot of funds. Interestingly, the owners of a joint-stock company expect to share in its profits.
Let’s learn more about such companies. If the company is not incorporated, the shareholders of such companies have limitless liability for company debts. In the case of the United States, the legal process of incorporation reduces that liability to the face value of stock owned by the shareholder. Besides, in Great Britain, the term “limited” has a similar meaning.
Inexperienced investors might not be aware of the fact that the shares of a joint-stock company are transferable. Moreover, if the joint-stock company is public, its shares trade on registered stock exchanges. Shares of private joint-stock company stock are transferable between parties.
Historically, investors in such companies could have limitless liability. So, this means that a shareholder’s personal property could be confiscated to pay off debts in the event of a company collapse.
Joint-stock companies and interesting facts
Each country has its own laws when it comes to such companies. Importantly, these typically include a process to limit liability.
The history of joint-stock companies dates to the 13th century. Joint-stock companies gained popularity in the 16th century. At that time, investors started to pay attention to various ideas. Additionally, they understood that the New World offered new opportunities.
They provided a lot of funds for various projects. Governments wanted to explore the Americas. However, they were reluctant to take on enormous costs and risks associated with these ventures.
Entrepreneurs came up with a business plan. Furthermore, they would sell shares in their ventures to many investors. They wanted to raise money to fund voyages to the New World.
In American history, the Virginia Company of London was one the most famous joint-stock companies. In 1606, King James I granted the company exclusive rights to establish a colony in what is now Virginia. The company’s business plan was ambitious, ranging from the region’s gold resources (there weren’t any) to funding a navigable route to China. However, the Virginia Company of London was not able to find such a route to China.
The company had to deal with various problems. Nevertheless, it successfully established the Jamestown colony in Virginia and began to grow and export tobacco. In 1624, an English court made an important decision. It ordered the company to dissolve and convert Virginia into a royal colony. Last, it is worth noting that the investors in the Virginia Company saw a profit.