Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 5 Basic knowledge of joint-stock companies (1)
((Section [-])) What is a joint stock company
A joint-stock company is a form of business organization that concentrates scattered capital for management by issuing stocks and other securities.Produced in Europe in the 18th century, it was widely popular in capitalist countries in the world in the second half of the 19th century. Up to now, joint-stock companies have dominated the economies of capitalist countries.

A joint-stock company is a joint venture company, which has the following characteristics: First, the capital of the joint-stock company is not invested by one person alone, but is divided into several shares, which are composed of joint investment and subscription by many people; The ownership of the company does not belong to one person, but to all those who subscribed for the shares of the company.

These two characteristics of a joint-stock company give it advantages that other forms of business organizations do not have:
First, joint-stock companies can quickly achieve capital concentration.The capital of a joint-stock company is divided into several shares, which are subscribed by investors. Investors can subscribe for one or several shares according to their own financial capabilities.In this way, a large amount of investment is broken into parts, enabling more people to invest and greatly speeding up the investment.

Second, joint-stock companies can meet the requirements of large-scale production in the modern society for the organizational form of enterprises.Socialized large-scale production has higher requirements on the form of enterprise organization, and joint-stock companies can meet these requirements. This is because joint-stock companies can concentrate huge amounts of capital through public offerings to meet the capital needs of large-scale production; at the same time, joint-stock companies The ownership of the company belongs to all shareholders, and various management institutions such as the general meeting of shareholders, the board of directors, and the board of supervisors have been set up to implement the separation of ownership and management rights. Therefore, the joint-stock company has become the most important form of enterprise organization in the modern economy.

Since each joint-stock company has its different characteristics, it can be divided into different types.

[-]. Unlimited company

Simply put, an unlimited company is a company in which all shareholders are jointly and severally liable for the company's debts.The so-called joint and several unlimited liability includes two meanings: (1) Shareholders bear unlimited liability for the company's debts.It means that the shareholders are responsible for the company's debts with all their assets.When the company is insolvent, no matter how much the shareholders contribute, they must use all their assets to pay off the debt. (2) Shareholders are jointly and severally liable for the company's debts.That is to say, all shareholders are jointly responsible for the debts of the company, and each shareholder is responsible for all debts. When the company is insolvent, the creditor can ask the shareholders to pay the debts. He can ask all shareholders to pay the debts together, or only one of them. Shareholders shall not refuse the request for repayment of debts. When one shareholder repays all the company's debts, other shareholders can discharge the debts.In addition, joint liability also includes: shareholders are also responsible for the debts incurred by the company before they joined the company; Joint liability; within 3 to 5 years after the dissolution of the company, the shareholders are still responsible for repaying the company's debts.

There must be at least two shareholders in an unlimited company, and the capital of the company is formed on the basis of the mutual familiarity and trust of the shareholders.Here, the factor of personal trust plays a decisive role, and it is difficult for non-close relatives and friends to become shareholders of the company.Therefore, people also call the unlimited liability company "personal partnership".

Since the shareholders of the company bear unlimited responsibility for the debts and guarantee the interests of the creditors, the company has a high reputation; at the same time, the company is simple to form, as long as two shareholders trust each other to form a company, eliminating the need for complicated legal registration procedures.For shareholders, there is no need to disclose business insider information to the public.Strong confidentiality is conducive to competition.However, the disadvantages of an unlimited liability company are also obvious. Since the shareholders have to bear joint and several unlimited liability for the company's debts, the risk of investment is too great; shareholders cannot freely transfer their shares.To transfer shares, the consent of all shareholders must be obtained, which undoubtedly increases the difficulty of raising funds for the company.

[-]. Limited company

Shareholders are only responsible for the company's debts to the extent of their own capital contributions.Compared with an unlimited joint stock company, a limited company has fewer shareholders, and the company laws of many countries have strict regulations on the number of shareholders of a limited company.For example, countries such as Britain and France stipulate that the number of shareholders of a limited liability company should be between 2 and 50. If it exceeds 50, it must apply to the court for a license or convert it into a joint stock limited company.At the same time, the capital of a limited company does not have to be divided into equal shares, and no shares are publicly issued. The company's shares held by shareholders can be freely transferred among the company's internal shareholders. If they are transferred to people outside the company, they must obtain the consent of the company's shareholders. .Due to the small number of shareholders, the establishment procedures of the company are very simple, and the company does not need to disclose the company's business status to the public, which enhances the company's competitiveness.

[-]. Joint-stock company

That is, the company is composed of unlimited liability shareholders and limited liability shareholders.Among the company's shareholders, there are both unlimited liability shareholders and limited liability shareholders.Shareholders with unlimited liability bear joint and several unlimited liability for the debts of the company, and shareholders with limited liability are only limited to the amount of their capital contributions.Due to the different responsibilities of company shareholders, their status and roles in the company are also different.Unlimited liability shareholders enjoy control in the company and manage the business activities of the company; while limited liability shareholders cannot manage the company's business.Nor can it represent the company externally. If you want to transfer shares, you must get the consent of more than half of the unlimited liability shareholders.

[-]. Limited by Share Ltd

The joint stock company is the most important form of company in western countries.

A joint stock limited company has the following characteristics: (1) A joint stock limited company is an independent economic legal person; (2) The number of shareholders of a joint stock limited company shall not be less than the number prescribed by law. For example, according to French regulations, the number of shareholders shall be at least 7; (3) Shareholders of a joint stock limited liability company shall bear limited liability for the debts of the company, the limit being the amount of shares that the shareholder shall deliver; After paying the share payment, you can become a shareholder of the company without qualification restrictions; (4) The company's shares can be freely transferred, but cannot be withdrawn; (5) The company's accounts must be disclosed to the public so that investors can understand the company's situation and conduct (6) There are strict legal procedures and complicated procedures for company establishment and dissolution.

It can be seen from this that a joint stock company is a typical "capital joint venture".Whether a person can become a shareholder of the company depends on whether he has paid for shares and purchased shares, not on his personal relationship with other shareholders. Therefore, a joint stock company can quickly, widely and massively concentrate funds.At the same time, we can also see that although the capital of unlimited liability companies, limited liability companies, and partnership companies is also divided into shares, these companies do not issue shares to the public, and the shares cannot be freely transferred. Stocks are issued by companies limited by shares. Therefore, in a narrow sense, a company limited by shares refers to a company limited by shares.

[-]. Joint Stock Co., Ltd.

A joint stock limited liability company is a company composed of unlimited liability shareholders and limited liability shareholders.Among them, the capital of the limited liability part is divided into several equal parts, which are subscribed by each limited liability shareholder, which is the difference from the limited liability company.A joint stock limited company has the following characteristics:
(1) Shareholders with unlimited liability are jointly and severally liable for the debts of the company; shareholders with limited liability are responsible for the debts of the company within the limit of their capital contribution.

(2) Shareholders with limited liability must obtain the permission of more than half of shareholders with unlimited liability before they can transfer all or part of their shares to others.

(3) Shareholders with limited liability generally cannot perform business on behalf of the company and represent the company externally.

After the end of each business year, joint-stock companies must distribute profits.A company's profit is the difference between what a company earns and what it spends.As far as joint-stock companies are concerned, their profits mainly come from two aspects: (1) operating profit income; (2) non-operating profit income, which includes: income from issuing stocks exceeding the par value; Income; premium income from the sale of assets and gift income, etc.

According to the company law, the profits of joint-stock companies should be distributed in a certain order and proportion.First, a part of the provident fund should be withdrawn from the company's profits.The provident fund is mainly used to make up for the company's unexpected losses, expand the production scale and business scope, and consolidate the company's financial foundation.The provident fund can be divided into statutory provident fund and discretionary provident fund.Statutory provident fund is a provident fund that is compulsorily withdrawn according to the law. All countries have clear regulations on the withdrawal ratio of statutory provident fund, and the company's articles of association and shareholders' meeting have no right to change it.Discretionary provident fund refers to the provident fund withdrawn by the company's articles of association or the decision of the general meeting of shareholders in addition to the statutory provident fund. It shall be stipulated by the company itself in the articles of association.

After the provident fund is withdrawn, the remaining profit will be used to pay interest to creditors and dividends to shareholders. Since the company must pay interest to creditors on a regular basis, the withdrawal ratio of this part is determined by the interest rate, which is relatively fixed.The part of the company's profits used to pay shareholder dividends is not fixed. It is determined by the company's total profits and the amount of the above-mentioned deductions. If the profits are large, the dividends can be divided more, otherwise it will be reduced, sometimes even none.

(Section [-]) How to set up a joint-stock company

According to the company laws of western countries, the establishment of joint-stock companies must go through certain legislative procedures, which mainly include the following.

[-]. Organize a certain number of promoters

Sponsor refers to the person who set up the company.Generally speaking, it can be a natural person or a legal person; it can be a resident of the country or a foreigner, but it must have the capacity to act. Detainees and mentally ill patients cannot be the initiators.

Different countries have different regulations on how many people are needed to start a company.For example, the United States "Standard Company Act" stipulates 1 or 9 people, France and Japan require at least 7 people, and West Germany requires 5 people.

As the company's founders and promoters, they can enjoy the right to receive reasonable remuneration or reasonable profits, and other people must not illegally infringe on the vested interests of the promoters.But at the same time, the promoters also have to bear some joint and several liabilities.Joint and several liability includes: (1) Among the shares issued for the first time, the promoters should jointly subscribe for the unsubscribed or subscribed and withdrawn shares; (2) The promoters damage the company due to negligence of duties (3) The debts incurred by the company before registration shall be jointly and severally liable after registration; (4) When the company cannot be established, the promoters shall be liable for the work and expenses incurred in establishing the company. bear joint and several liability.

[-]. Formulate the Articles of Association

The articles of incorporation are the conditions that stipulate matters such as the organization and business activities of the company.Through the formulation of articles of association, the company's establishment purpose, business scope, capital amount, etc. are stated to the public, and it acts as a legal constraint on the company's business activities.

The articles of association of the company are drawn up by the promoters, submitted to the court or notary for approval, submitted to the relevant government departments for registration, application for approval, and publication in designated newspapers.The articles of association of the company include the following contents: (1) the name of the company; (2) the term of the company; (3) the purpose of the establishment of the company, that is, the nature and scope of the company's business; (4) the total capital of the company and the amount per share; Location; (5) Announcement method; (6) Date of conclusion of articles of association, etc.; (7) Name and address of founder of the company; (8) Other terms, such as the type of special shares and rights and obligations, whether the promoters have special interests, etc.

[-]. Subscription of Shares

Capital is the economic basis for the survival and development of a joint-stock company. Only when sufficient capital is raised can the company open for business. The company's capital is raised through the issuance of shares, so subscription of shares is the most important link in the process of company establishment.There are two ways to subscribe for company shares, and people often use this as a standard to divide the company’s establishment into two corresponding forms:

The first form is establishment by initiation, also known as one-time establishment or simultaneous establishment, that is, the company’s first issue of shares is fully subscribed by the promoters themselves, and no public offering is made;

The second form is the establishment by public offering, also known as gradual establishment, that is, the promoters only subscribe for part of the company's first-issued shares, and the rest are publicly offered for public subscription.The procedures for setting up a public offering are more complicated.First of all, the promoters of the company themselves have to subscribe for a part of the shares, and then publicly issue shares to the public.A prospectus must be drawn up when the offering is made.The content of the prospectus is similar to that of the company's articles of association, mainly including: (1) the name of the company; (2) the purpose of the company's business operations, the nature and scope of business operations; (3) the total number of shares and the amount per share; (4) the names of the promoters and domicile, the number of shares subscribed and the special benefits received; (5) the total number of shares offered and the deadline for full offering; (6) the qualifications for the election of directors and supervisors; (7) dividend distribution regulations; (8) Other matters, etc.After the prospectus is signed by the promoters, it shall be reported to the company registration office, and then announced to the public in newspapers to obtain public subscription.When subscribing for shares, the promoters should prepare a subscription form, and the subscribers should fill in the subscription amount.The promoters can require the subscribers to pay for the shares. If the subscribers do not pay the shares within the specified time limit, the promoters can forcibly collect the money. If the subscribers refuse to pay within the time limit, the promoters can waive their rights. .Payments are generally made in cash; sometimes in kind, but usually only the promoters have this right.

[-]. Election Management Organization
After the funds are raised enough, the promoters can call the subscribers to hold a company establishment meeting.The tasks of the founding committee are: (1) to listen to the issuer's report on the company's establishment and the process of the company's establishment; (2) to elect the company's directors and supervisors; (3) to revise the company's articles of association.

[-]. Go through the company establishment registration procedures

When registering, other documents such as the company's articles of association, the resolution of the founding meeting, etc. should be provided to the government department. After the registration is completed and approved, the company will obtain the qualification of a legal person and declare the company to be established.

The Articles of Association is a normative document that stipulates the company's organizational and operating principles and determines the company's powers.The articles of association of the company shall be formulated by the promoters, and after being notarized by the court or a notary public, they shall apply for registration with the relevant departments and publish them in the designated newspapers and periodicals.

The articles of association include the following basic contents:
(1) Company name.The promoters of the company can choose any suitable company name by themselves, but they must not use a name that is inconsistent with their business scope or assets, nor should it be the same or similar to the registered company name.The company name should also indicate the type of company, such as the words unlimited company or limited company.

(2) The business scope and nature of the company.The company's business scope and business nature are specified in the articles of association.One is to let investors clarify the purpose of the investment funds; the other is to let the company's customers clearly understand the company's scope of power. If it is to be changed, it needs to go through a special resolution of the shareholders' meeting to change the company's articles of association and change registration.

(3) The company's total capital and the amount per share.In the articles of association of the company, the amount of capital registered by the company and divided into several shares according to a certain fixed amount should be stated. Usually, the amount of each share is set at a low level to facilitate widespread subscription.

(4) The registered capital of the company.Registered capital is the amount of nominal share capital that the company is required to produce in order to ensure the company's property and the interests of creditors. It is the limit of the company's right to issue shares. It indicates the company's current and future possible scale. Registered capital cannot be called a strict sense. "Capital", it is a permission granted by relevant departments to allow joint-stock companies to issue shares.The registered capital should be stated in the articles of association of the company. Changes to the registered capital must be approved by the general meeting of shareholders and approved by relevant departments, and cannot be changed arbitrarily.

(5) The address of the company.

(6) The type of stock of the company and its ratio to the total number of shares.

(7) The organizational structure of the company, the establishment of the management organization, functions and powers, and rules of procedure.

(8) Procedures and powers of the company's legal representative.

(9) The form and method of the company's profit distribution.

(10) The method of announcement.The company shall use a specific announcement method to announce relevant matters to the public, and the announcement shall be published in the newspaper where the company is located.

(11) Conditions for company dissolution.

(12) The date on which the articles of association are made.

In addition, there are some by-laws; such as the establishment of branch companies, the amount issued by tranches of shares when the company was established, the special benefits enjoyed by the promoters due to the risk taking, and the names of relevant beneficiaries and restrictions on voting rights. .

(Section III) Structural Organization of Joint-Stock Company

Under normal circumstances, the company's organizational management organization is composed of the general meeting of shareholders, the board of directors, special committees under the board of directors, the board of supervisors, and the general manager and deputy general manager.Some companies do not set up various special committees under the board of directors, and their work is in charge of the organization under the chairmanship of the general manager.

The establishment of this kind of organizational management mechanism draws lessons from the theory of separation of powers in bourgeois political theory. The general meeting of shareholders is regarded as a legislative body and a decision-making body; mechanism.A system of separation of powers is adopted to achieve self-checks and balances of power within the company and internal autonomy of the company.

[-]. General Meeting of Shareholders

The general meeting of shareholders, also known as the plenary meeting of shareholders or the general meeting of shareholders, is a legally necessary joint-stock company and the highest authority composed of all shareholders.

(End of this chapter)