Advantages of a Joint Stock Company


The idea of a “joint stock” company is a very general one. It refers to all arrangements when a company raises capital by selling shares in itself, forming a collective of shareholders who elect management to run the firm. This includes the idea of limited liability, where shareholders are only responsible for what they have invested, and nothing else in the case of dissolution. It also includes the distinction between private and public firms, which refers to the means of raising capital, on public stock markets or through private channels.

Raising Capital

The clearest advantage to any joint stock enterprise is the ease in raising capital. In fact, the entire point of a joint stock firm is to be able to sell shares (and future dividends) in exchange for quick cash. While this dilutes the founder's control over the firm, it brings in new people, new money and new ideas.

Collective Decisions

A joint stock firm of whatever kind is a collective. That is an advantage in itself because of the democratic element in decision making. More than one person has a voice, which brings in new ideas and experiences that can help a business thrive. But the democratic element of such a firm also deals with management specifically, in that the board of major shareholders then (especially in smaller firms) chooses who will run the firm, and then, to an extent, oversees his activity as manager. This separates ownership from control, but it also creates an experienced oversight board to double-check management decisions.

Limited Liability

Limited liability is an important advantage, if not the central advantage. If a person runs a firm himself, then that person is totally responsible for anything that goes wrong with the firm, and is responsible for all debts personally. This, in the case of a lawsuit or bankruptcy, could lead to the liquidation of the owner's assets quite apart from those assets strictly used for the business. Limited liability means that those who have invested their money in the firm can only have the firm's assets liquidated, and nothing personal. This is a huge advantage in an age of substantial lawsuits and endless bankruptcy proceedings.

Public Confidence

This is a more abstract advantage, but real nonetheless. A joint stock firm has investors, a board and management that is overseen (in theory) by the board. This kind of firm is normally larger than the sole proprietorship, and is normally well capitalized. This means it is stronger in dealing with credit problems or market downturns than a single owner. Dealing with a large firm provides confidence in that most customers and bankers realize that such a firm has the resources to improve its credit quality whenever necessary. It also has the resources to hire and train the best managers and basic employee talent.

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