A stock corporation is a form of company that is granted legal personality from the time it is founded and that is commonly used for the management of companies. The company’s share capital consists of the total contributions of its shareholders. Stocks can be subject to public trading, which gives investors an incentive that is needed for further business development. At the time of incorporation of the company, the shareholders can declare it as a closed company, i. H. the shares can be transferred to anyone, but the current shareholders must first decline. At the time of incorporation, shares can be issued in various forms, including bearer shares, registered shares, or preferred shares.
Functions of a public company
The ultimate goal of all businesses is to run a business and make a profit. A public company is a useful type of company for attracting investors and additional funding, while in return the investor receives shares that grant the right to dividends. Often, public companies grow into large corporations with substantial capital. They are most commonly found in the financial services sector – credit institutions, banks, insurance companies, and other payment and financial institutions are very often public companies. Of course, these companies need financial stability and, if necessary, sufficient funds available.
Advantages and disadvantages of a stock corporation
The advantage of this type of company formation lies in the limits of liability. In principle, shareholders of a stock corporation are only liable up to the amount of their contribution to the company. In the event of the company’s insolvency, the creditors cannot demand any compensation or compensation from the shareholders. Conversely, the company is not liable for the debts of its shareholders. The strict separation between the obligations of the shareholders and the company is based on the principle of the legal person.
Another advantage is the ability to raise the necessary funds to set up a business. In the start-up phase, it can be difficult for a company to obtain start-up capital. However, if a few business partners are investing to achieve a single goal, then business start-up plans are likely to be more realistic. In the meantime, the joint investment is directly related to the joint profit sharing. So if the company makes a profit, the dividends should be distributed proportionally to each shareholder.
The duties and responsibilities of a company’s board of directors are based on the applicable commercial law and the company’s articles of association. A stock corporation usually has a two-tier supervisory board that helps control decision-making in day-to-day business and avoid mistakes, but a complicated management structure can affect the speed of decision-making at times when a quick response is required.
If you are planning to set up a company in the form of a stock corporation, we strongly recommend that you consult with us beforehand. We will inform you comprehensively and in detail about tax structuring options and the most efficient corporate structure for your company.
Types of public companies
Public companies can be both public and private. Private companies are companies that are owned by private individuals, regardless of whether they have one or more shareholders. In a private company, shares can be elected to anyone by the current shareholder, and shares are usually transferred under a share purchase agreement. Shareholder status grants the right to take an active part in business and the decision-making process.
Public companies do not necessarily have to belong to the state or any other state body. A stock corporation is a company whose shares can be freely traded on the open market via a stock exchange, so that the list of shareholders is not fixed and can be changed flexibly. One of the leading exchanges is called NASDAQ. An exchange acts as an intermediary and publishes information about the value of the stock. If a public company needs more funds, it can issue additional shares and offer them for trading. Accordingly, further funds will be invested in the company. Anyone can track the value of the stock on a public website, and this provides an objective indicator of the company’s financial condition. For example, if the company is not profitable and is likely to get into trouble, the stock value will go down.
The term public company can also be used to refer to a company owned by the government or controlled in whole or in part by a public entity. This classification is based on the origin of the company’s funds. Often times, companies that provide public services such as heating, water, sewerage, and public transportation are set up in the form of public companies and are owned by the local community. In some cases, 51% of the shares in a public company are owned by the state and the remaining shares are offered for public trading on the stock exchange.
Shareholders of a joint-stock company
The shareholders of a joint-stock company can be individuals as well as other companies, such as limited liability companies or other joint-stock companies, partnerships or a combination. There is usually no upper limit on the number of shareholders. The corporate structure may involve subsidiary and parent companies based in different jurisdictions, e.g. shareholders might be based in low-tax countries or the joint-stock company may open a subsidiary in an offshore jurisdiction. To illustrate, a company based in the United States might open a joint-stock company in Latvia. Nowadays, in the vast majority of developed countries there are no restrictions on the nationality of shareholders. Free movement of capital and business is one of the fundamental principles of the European Union, which means that EU citizens may set up a company in any of the EU member states under the same conditions as nationals of the country concerned.
Joint-stock company management
A joint-stock company is governed by the company board, whose activities are supervised by the council. Usually, the council consists of at least three members, whereas the company board needs only one member. Shareholders may appoint a company management board to take care of daily business. The shareholders themselves are not required to actively participate in the running of the business and this can be delegated to the company directors. All decisions regarding company structure and other vital aspects such as profit-sharing, dividends and company development fall under the competence of the shareholders’ meeting.