This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A joint-stock company is a partnership with its capital divided into transferable shares. Except in the State of New York, such a company may be formed simply by agreement. In New York special statutes provide for an organization similar to a corporation, and the formation of such associations is prohibited except as provided by the statutes. The courts in New York define these organizations as being partnerships with some of the powers of a corporation. In New York these joint-stock companies may sue or be sued in the name of the president or treasurer, and the individual members may not be sued until it is shown that the claim cannot be collected from the company. Several of the leading express companies are organized under the New York Joint-Stock Company Law, and in these cases the arrangement seems to work very satisfactorily. In other states the joint-stock company form is very rarely used for the following reasons:
1. Members of the company are individually liable for its entire obligations.
2. While the company can do business under its company name, it cannot hold real estate and it is necessary that any real property be held by some agent or officer as trustee for the company.
3. The joint-stock company must bring suit in the names of all the members, and, if it is sued only those members who are served with process can be held.
There are cases where the danger of partnership liability is too remote to trouble the members, and in such cases the joint-stock company secures the same advantage of stock and transferable stock certificates as does the corporation. The form could not be used where stock is to be sold to investors as these would not risk the partnership liability involved. Practically, the joint-stock organization is rarely used in this country. In Great Britain and the British colonies, it is quite common. From a financial standpoint the British joint-stock company is practically the same as the American corporation. The words "company" or "corporation" will hereafter be used interchangeably and refer to either.