What was a joint-stock company?

Question

(Joint-stock companies, during the colonial period of America)

This is what my book says:

these were joint-stock companies, which raised their capital by the sale of shares of stock.

I don't understand what this means though! Can someone explain the above in layman's terms?

Answer 1

In a regular business, you gather capital, either your own or from investors, and you trade. If things go wrong, as the responsible owner you have legal obligations. Also, those whose money you were using have obligations, for instance, if tyhe products hurt people, your workers are injured, or if you make false claims.

The joint stock company was designed to remove these responsibilities and make business easier.

A business that structures itself this way has certain advantages: it can raise far more capital from ordinary investors, in a market of business opportunities (the stock market). Investors have LIMITED LIABILITY so they cannot be held responsible for the malicious or negligent actions of the company. They (theoretically) have control over company management and policy through annual general meetings. It is the separation of capital from liability and responsibility that lies at the heart of the joint-stock company concept.

Profits are distributed to stock holders, and the vakue of the company as a whole can change with trading of the stock at different values. It is easy for those providing the capital to turn that capital into cash: they sell their stock instead of having to get the company to release the funds.

The managers have less (theoretical) control over the business, but as we know from experience they can in fact usually dictate their own pay, conditions and company policies.

Answer 2

joint stock companies were businesses of sorts, where wealthy Englishmen would invest money in one, and in return they would get a percentage of the profits these companies made from trade in the new world. the most well known joint stock company was the Virginia Company (Founded Jamestown, Virginia)