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What is joint stock company?

21-07-22 MT & Partners

Joint-stock company is one of the types of companies in the form of capital contribution by many investors with the aim of seeking profit in production, business and service activities. This type of company is increasingly being chosen by investors to establish when there is a need to contribute capital to establish a business. What are the characteristics of this type of company?

Article 111 of the Enterprise Law 2020 provides as follows:

“Article 111. Joint stock companies

1. Joint stock company is an enterprise in which:

a) The charter capital is divided into equal parts called shares;

b) Shareholders can be organizations or individuals; the minimum number of shareholders is 03 and there is no limit to the maximum number;

c) Shareholders are only responsible for the debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise;

d) Shareholders have the right to freely transfer their shares to others, except for the cases specified in Clause 3, Article 120 and Clause 1, Article 127 of this Law.

2. A joint-stock company has legal status from the date of issuance of the Certificate of Business Registration.

3. Joint stock companies have the right to issue shares, bonds and other securities of the company.”

1. CHARACTERISTICS OF JOINT STOCK COMPANY

Firstly,  at the time of establishment, a joint stock company is a type of company against capital. That means that when establishing a company, it is mainly concerned with contributed capital, and it does not matter who contributes capital. Therefore, a joint stock company has an open capital structure.

Second, the  charter capital of a joint-stock company is divided into equal parts called shares. The value per share is called the par value of the share and is reflected in the share. A share may reflect the par value of one or more shares, each shareholder may purchase multiple shares. The law or the company’s charter may limit the maximum number of shares that a shareholder can buy to prevent a certain shareholder from taking control of the company due to having a lot of capital contributed. The Law on Enterprises does not stipulate how many parts the charter capital of the company must be divided into, and how much each part is worth. However, the Securities Law 2019 stipulates that the par value of shares offered for the first time to the public is ten thousand Vietnamese dong (Clause 2, Article 13 of the Securities Law 2019). Thus, a joint-stock company that wants to offer shares to the public must first convert the par value of the shares to ten thousand Vietnamese dong. That leads to the fact that in fact joint-stock companies all determine the par value of shares is ten thousand Vietnamese dong to ensure liquidity. From this feature, it can be affirmed that dividing the company’s capital into shares is the most basic issue of this form of company.

Third, the law only stipulates the minimum number of members, but does not limit the maximum number of members. The Enterprise Law 2020 currently stipulates that the minimum number of members in a joint stock company is 3, shareholders can be individuals or organizations.

Fourthly,  the freedom to transfer the contributed capital is also a feature only found in joint-stock companies. Shares are represented in the form of shares. Shares issued by joint stock companies are a type of commodity. Holders of shares are free to transfer in accordance with the law. The transfer is done in the usual way or through trading on the stock market.

Fifth, about responsibility in business. A joint-stock company is liable with all its assets for the company’s debts. Shareholders are only liable for the debts and other property obligations of the company to the extent of the amount of capital contributed to the company.

Sixth, in terms of capital mobilization, in the course of operation, a joint stock company has the right to issue shares of all kinds, and has the right to issue bonds, convertible bonds and other types of bonds in accordance with law and regulations. Company rules.

Seventh, a joint-stock company has legal status and therefore the company also has the status of a trader. Neither the shareholders nor the company administrators have the status of traders. The people who have the right to deal with the outside are the representatives of the company. Joint-stock companies have a very tight organizational structure due to the aforementioned characteristics that require a professional management structure separate from ownership.

2. ADVANTAGES AND LIMITATIONS OF JOINT STOCK COMPANY

2.1. Advantages of joint stock company

– Limited liability mode, so the risk level of shareholders is low.

– The ability to raise capital is very high and flexible through the offering of all kinds of shares, issuing shares to the public. This is an advantage that no other company has.

– The operation capacity of joint stock companies is very wide, covering almost all fields and industries;

Simple share transfer procedures, plus unlimited number of shareholders are factors that attract many individuals or organizations to easily contribute capital to a joint-stock company.

– Have the right to list and trade shares on the stock exchange.

2.2. Disadvantages of joint stock company

– The company’s organizational structure is complicated, so the management and operation of a joint stock company is also more difficult because the number of shareholders is very large, many shareholders may not know each other.

– For a joint-stock company, it will be more difficult to make a decision whether it is about corporate management or business because it has to go through the Board of Directors, the General Meeting of Shareholders… So it is easy to ignore. business opportunities for businesses.

– Confidentiality in business and finance is limited because the company must disclose and report to shareholders at annual meetings.

MT & Partners hope that this article will bring useful knowledge to the readers.