JOINT STOCK COMPANIES 1. Nature of joint stock companies.—What is the difference between a joint stock company, a Massa chusetts or business trust, described in the previous chapter, a, partnership and a corporation? The dif ference, as has been stated by a modern cyclopedia of law, "has become obscure, elusive and difficult to describe." It will be worth while to make these ferences as clear as possible.
2. Difference between joint stock company and business trust.—The joint stock company is a collec tion of individuals doing business thru a chosen board of directors ; a business trust is a board of trustees doing business for the benefit of a number of persons known in law as cestnis. On this important differ ence of ownership rests the other differences between the two forms of' organization. The joint stock mem bers are liable as partners; the trust beneficiaries are not. The joint stock members own the property; the holders of trust certificates merely have undivided, equitable interests in it.
3, Difference between joint stock companies and partnerships and corporations.—The business man will get a good idea of the joint stock company by thinking of it as a combination of the partnership and the corporation. In the legal sense, perhaps, it most resembles the partnership, for it is formed under a contract agreement. No special sanction for it is re quired from the state, and therefore no license tax is paid. The members are severally and jointly liable for all the company's debts. There may be a thou sand members and all but one may be insolvent. The solvent one will have to answer for the debts of the concern, if the creditors cannot satisfy them out of the company's joint property.
But, from the business man's point of view, from the standpoint of control and management, the joint stock company is similar to the corporation. And this similarity makes the joint stock company preferable to the partnership where many people are to associate themselves in the undertaking. The associates or members do not directly control the company; they are not general agents. Instead, they choose a board of directors, who, while acting together as a board, and within the rules stated in the by-laws, are the authorized agents and managers of the company. Then, as a necessary consequence, the membership inay change from time to time, either thru death or thru the transfer of a membership interest, without causing the dissolution of the company. In respect to the management, therefore, the joint stock com pany resembles the corporation.
4. History of joint stock corporations.—Joint stock companies began in England as separate ventures managed by a single board of directors. Frequently, before one venture or voyage was ended, the same directors would start another, and while frequently many of the same participants in the two or more ven tures were identical, this was not the invariable rule. Moreover, the funds of each venture were supposed to be separately administered. Gradually, the ven tures became more and more consolidated, and at about the time of the incorporation of the old East India Company (1600), joint stock companies with a continuous business became well known. It is in
teresting to note that such ventures were called joint stocks; that they were administered by the companies as indicated above, for the several groups of partici pants; and that the difficulties in the way of devising and operating an adequate system of accounts for the several joint stocks, controlled by a single admin istration, finally brought about the abandonment of separate accounts and the consolidation of the joint stocks into one continuous business.
Shortly after the R.estoration in England (1660), money became very plentiful and joint stock compan ies grew rapidly in number. The leading company was the South Sea Company. This company, which had authority directly granted, began to question be fore the courts the rights of other companies that sprang up and did business without sovereign grants. This action "unexpectedly forced marginal holders of the unincorporated companies' stocks to part with their securities in the South Sea Company. Thus the 'South Sea Bubble' finally burst and a disastrous panic ensued." In the same year, 1720, the Bubble Act was passed, prohibiting the operation of unchartered joint stock associations. This act was extended to the American colonies in 1741. It was repealed in England in 1825. It has been held that this act never became a part of 'American common law, and that joint stock companies as such, have never been illegal bere.3 5. Joint stock companies in, modern times.—Un doubtedly less than one per cent of the business con cerns in America today are conducted on the joint stock company principle. The best examples are the large express companies, which probably owe their existence in this form to the fact that they were or ganized shortly after the State of New York, in 1854, haa passed a law providing for a method of forrna tion and management of joint stock companies.3 In Canada, companies are generally formed by the issue of letters patent. ,Joint stock companies formed by registration instead of by .letters patent are the rule, however, in certain provinces; for example, in British Columbia, Alberta, Saskatchewan and Nova Scotia, in cases where the applicants seek joint stock privileges under provincial rather than under do minion authority. In Quebec, also, there is a pro vision made in the statutes for the formation of joint stock companies by a species of registration, a method seldom employed. The ordinary method of incor poration by letters patent, while more expensive, is better understood and more favored. In Quebec anv seven or more persons may associate themselves to gether for the purpose of carrying on any labor, trade or business, except for tbe working of mines, minerals or quarries, and the business of banking or insurance, thus forming a so-called joint stock company the business of which is carried on by directors or other mandators.