joint stock company is a type of business partnership in which the capital is formed by the individual contributions of a group of shareholders. Certificates of ownership or stocks are issued by the company in return for each contribution, and the shareholders are free to transfer their ownership interest at any time by selling their stockholding to others.
Ownership of stock confers a number of privileges. The company is managed on behalf of the shareholders by an elected Board of Directors. Consequently, the share owner may attend an annual general meeting, and vote for directors and sometimes the principal officers. The shareholders receive an annual report, and vote upon the yearly audited set of accounts. Other resolutions upon important decisions can be put to them. There are other meetings, which may be called, either regularly or by special resolution of either the Board or the shareholders themselves.
Of course, individual shareholders can sometimes stand for directorships within the company, should a vacancy occur, but this is unusual.
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.
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.
The Dutch started joint stock companies. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.
During the period of colonialism, the joint stock company was a financing model that allowed companies to raise large amounts of capital while lowering risk by diversifying contributed capital among multiple ventures. 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.
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 market.
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 were made possible.
The joint stock company was a forerunner of contemporary corporate entities such as the American business corporation, the British public limited company, the French societe anonyme, the German Aktiengesellschaft and the Japanese kabushiki kaisha. In some countries, "joint stock company" is used as an English translation for business forms that more closely resemble corporations.