What is a Joint Stock Company
A joint stock company is an organization falling between the definitions of a partnership and corporation regarding shareholder liability. In the United States, shareholders of joint stock companies have unlimited liability for company debts. In the United Kingdom, shareholder liability is limited to the nominal value of shares held by each shareholder.
BREAKING DOWN Joint Stock Company
The shares of a joint stock company are transferable. For a public joint stock company, the shares may be traded on a registered exchange. A private joint stock company stock is transferable between private parties. Since U.S. joint stock company investors could have unlimited liability, company debt could be paid for with the seizure of the shareholder's personal property.
In 17th-century England, joint stock companies were the forerunner to the modern business structure of a corporation. In many cases, the Crown of England chartered these companies to undertake high-risk endeavors that would return a profit to the Crown. The capital is raised through the investment of wealthy individuals, who would also share in the profits. Investor liability is 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 formed a profit-making venture to colonize the New World for England. The company sold shares in the company to raise capital. Owning a portion entitled 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 that set sail for Virginia, where they established a small colony on Jamestown Island.
The original mission of the colony was to recover what was thought to be significant gold and mineral reserves throughout the region. When it was discovered there was no gold, the settlers directed their efforts to the harvest of other natural resources in an attempt to generate profits. Frigid winters, inadequate food, and near nonexistent water supplies coupled with sickness, internal strife, and battles with native peoples kept the settlers in survival mode.
These hard circumstances detracted from the colonist's financial responsibilities to the company. After several attempts over the years to salvage the mission, which included massive publicity campaigns to attract new investors, the company was unable to stabilize the colony and make it financially successful. Investors never realized 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.