Features and organs of a joint-stock company
A joint-stock company raises money by selling shares to many people. Its main features are:
- Legal person. It can own things, sign contracts, sue and be sued in its own name.
- Limited liability. A shareholder can lose at most the money paid for the shares. The owner's house is safe.
- Easy to transfer shares. A shareholder can sell shares to someone else. The company carries on.
- Perpetual life. The company continues even if a shareholder dies.
The organs (the parts that make decisions)
The general meeting of shareholders is the top body. It elects the directors and approves big matters. The board of directors sets plans and watches the managers. Managers do the daily work. In many countries auditors also check the accounts. Names differ by country, but the idea is the same: owners, board, managers.
Contracts
A contract is an agreement the law will enforce. Usually it needs:
- An offer by one side.
- Acceptance by the other side.
- Something of value from each side (goods for money).
- Both sides free to agree and able to agree (not a child, not forced).
- A lawful purpose.
If one side breaks the promise, it is a breach. The other side can ask for damages (money for the loss) or ask the court to make the other side perform. Many contracts can be spoken, but a written one is much easier to prove.
Fund-raising and financial transactions
A company needs money to start and grow. There are two big routes.
| Equity (shares) | Debt (loans, bonds) | |
|---|---|---|
| Who gives money | Owners | Lenders |
| Must it be repaid? | No | Yes, with interest |
| Share of profit | Yes, a dividend if profit | No, only fixed interest |
| Say in running | Yes (vote) | No |
A company can also keep some of its own profit (retained profit). Since many people trust a company with their money, the law demands honest accounts and clear information when shares are sold to the public.
Reorganisation, liquidation and rehabilitation
Companies change shape and sometimes fail.
- Reorganisation: a merger (two companies join), an acquisition (one buys another) or a split (one company becomes two).
- Rehabilitation (rescue): a company in trouble gets a legal plan, such as more time to pay or lower debts, so it can keep working. This saves jobs.
- Liquidation (winding up): the company is closed. A liquidator sells its assets and pays debts. Lenders and other creditors are paid first. Shareholders get what is left, if anything.
Because of limited liability, if the money is not enough, shareholders lose their shares' value but do not have to pay the rest from their own pockets.
Securing fair competition
When many sellers compete, prices stay fair and quality improves. Competition law (also called anti-monopoly or antitrust law) protects this. It usually bans:
- Cartels: sellers secretly agreeing prices or sharing the market.
- Bid rigging: bidders agreeing who will win a tender.
- Abuse of a dominant position: a very big firm unfairly crushing small rivals.
- Harmful mergers: a big merger can be checked or stopped by a competition authority.
Offenders can be fined and ordered to stop. Customers gain because honest rivals keep prices low.
Key formulas and definitions
- Ownership % = (your shares / total shares) x 100
- Limited liability: maximum loss = money paid for shares
- Contract = offer + acceptance + value + free consent + lawful purpose
- Liquidation order: creditors first, shareholders last
- Key terms: share, dividend, board, merger, acquisition, liquidation, cartel
Worked examples
1. A company has 500 shares. Asha owns 125. What percent of the company is hers?
125 / 500 = 0.25, so 25%.
2. Ravi offers to sell a bicycle for 3,000. Mina says "Yes, I will buy it". Is there a contract? Why?
Yes. There is an offer (Ravi), acceptance (Mina), and value on both sides (bicycle and money). Both are free to agree and the purpose is lawful.
3. A company closes. Its assets sell for 600. It owes a bank 500 and has 300 of share capital. How much do shareholders get?
Creditors are paid first: 600 - 500 = 100 left. Shareholders share the 100, so they lose 200 of their 300.
4. Three bakeries meet and agree to charge 50 for the same loaf. Name the wrong and one result.
This is a cartel (price fixing), which competition law bans. The bakeries can be fined and told to stop.
Common mistakes
- Thinking the owner and the company are one person. In law the company is separate.
- Thinking shareholders run the company daily. The board and managers do that.
- Treating shares and loans alike. Loans must be repaid; shares need not be.
- Believing a big company is always illegal. Only unfair acts such as cartels and abuse are banned.