What is a 'Joint Stock Company'
A joint stock company is an organization that falls between the definitions of a partnership and corporation in terms of shareholder liability. In the United States, shareholders of joint stock companies have unlimited liability for company debts, but in the United Kingdom, shareholder liability is limited to the nominal value of shares held by each shareholder.
The shares of a joint stock company are transferable, so for a public joint stock company, the shares may be traded on a registered exchange, but for a private joint stock company, they are transferable between private parties.
BREAKING DOWN 'Joint Stock Company'
In 17th-century England, joint stock companies were the forerunner to the modern business structure of a corporation. In many cases, these companies were chartered by the Crown of England for the purpose of undertaking high-risk endeavors that would return a profit. Capital was raised through the investment of wealthy individuals who would share in the profits with liability limited to the amount of their initial investment. In American history, the Virginia Company of London is the most familiar joint stock company.
Historical Example of a Joint Stock Company
In 1606, King James chartered the Virginia Company of London as a joint stock company. The Virginia Company was formed as a profit-making venture for the purpose of colonizing the New World for England. The company sold shares to raise capital, entitling each shareholder to a proportional share of the net profits while limiting their total liability to the value of their shareholdings. The company sponsored three ships to set sail for Virginia, where they established a small colony on Jamestown Island.
The original mission for the colony was to recover what were thought to be large gold and mineral reserves throughout the region. When it was discovered there was no gold to be found, the settlers directed their efforts to other natural resources in attempt to generate profits. Extremely cold winters, poor food and water supplies, sickness, internal strife and Indian assaults kept the settlers in survival mode, which detracted from their financial responsibilities to the company. After several attempts over several years to salvage the mission, which included massive publicity campaigns to attract new investors, the company was unable to stabilize the colony enough to make it financially successful. Investors never realized any profits. However, the mission went far enough to establish Virginia as a colony of England, which laid the foundation for its expansion into the New World.