What is a Joint Stock Company?

A joint stock company is a company whose stockholders have the same privileges and responsibilities as an unlimited partnership.

How Does a Joint Stock Company Work?

A joint stock company issues shares similar to a public company that trades on a registered exchange. Joint stock holders may buy or sell these shares freely in the market. But unlike ordinary shares or preferred shares, the shares of a joint stock company carry explicit obligations. Holders have a direct vote in company management decisions as well as a joint and several liability for the company's outstanding debts.

For example, suppose Bob holds shares of Company ABC, a joint stock company. These shares give Bob a percentage of the vote on Company ABC's management decisions, board elections, etc. The shares also give Bob unlimited responsibility for company ABC's outstanding unpaid liabilities. In other words, unless Bob sells his shares of Company ABC, he is liable in whole and in part for principal and interest obligations on bonds or other outstanding loans.

Why Does a Joint Stock Company Matter?

Due to the nature of the stock, investors who hold shares of a joint stock company put their own assets at risk of being liquidated if the issuing company were to file for bankruptcy.