A joint stock company is a
business organization. It is owned by general public who buy it shares. The
person who holds shares of the company is known as shareholder. The company is run and managed by board of
directors elected by shareholders. Following are some of the advantages and
disadvantages of the joint stock company.
Advantages of Joint Stock Company
1. Limited Liability
The liability of shareholders
is limited to the amount they have invested in the business. It means their personal property remains
safe in case of bankruptcy. This advantage encourages large number of investors
to invest in the business.
2. Large Capital
In the public limited company
there is no limit of shareholders. This advantage helps the company to collect
huge amount of capital from large number of shareholders. Furthermore, the
company can raise capital to a large extent through issue debenture to
public.
3. Better Management
In the company ownership is
separated from its management. The owners or shareholders cannot take part in
the management of the company. The company is managed by board of directors
elected by shareholders. The directors
hire experienced and qualified personnel for efficient management. The
efficient management may help the company to take rational decisions and can
produce better results for the company.
4. Transfer of Shares
The shares of the company are
easily transferable. A shareholder can convert his holding into cash by selling
his shares at any time in the stock exchange. This brings liquidation of investment.
5. Stability
The company has long life
compare to sole proprietorship and partnership. It is not depending on death,
retirement, insanity, or bankruptcy of a shareholder. Also change of ownership and management does
not affect the continuity of the business.
6. Ease of Expansion
A company has unlimited
opportunities to finance new projects by issuing shares and debentures. It can
also transfer the portion of its profit to reserve which can be used for future
expansion.
7. Public Confidence
A company is required to
submit its financial statements (Income statement and Balance sheet) to
government. The accounts are audited by chartered accountants to make the
accounts free from errors and frauds. This enables the company to enjoy public
confidence.
Disadvantages of Joint Stock Company
1. Difficulty in Formation
The formation of a company is
quite difficult than sole proprietorship and partnership. It requires a lot of
formalities to be performed at the time of establishment. It must prepare
registration certificate, commencement certificate, memorandum and articles of
association and prospectus. The company also has to print share certificates
and publish its prospectus through advertisements.
2. Taxation
The income of the company is
dually taxed. First, the profit earned by company. Second, the dividend earned
by shareholders. In addition, the company must pay corporate tax which is
levied on its form.
3. Lack of Secrecy
A company cannot maintain
secrecy of its financial position. Every year financial annual statements are
distributed among shareholders, registrar, bankers, and stock exchanges of the
country. This disclosure helps the
competitors to know the strong and weak points of the concern. On the other hand, secrecy can be maintained
in sole proprietorship and partnership.
4. Lack of Credit Standing
The company cannot enjoy high
credit standing because of limited liability. If the assets are insufficient to
pay off debts, the personal property of shareholder cannot be utilized.
Inversely, sole proprietorship and partnership enjoy high credit standing due
unlimited liability.
5. Lack of Personal Interest
In the company shareholders
don’t take part in the management of business. The company is managed by its
employees who only take interest to the extent of their assigned tasks to
justify their salaries. They don’t take personal interest for the growth and
development of the company as in case of sole proprietorship and
partnership.
6.
Government Control
A company must compliance with
rules and regulations of the state. It has to submit various reports and
statements to the government. It must pay registration fee. It must pay all the
taxes imposed on its form. There is a heavy penalty for non-compliance.
Pdf b.com 1year
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