Business Studies XI Content
Merits and demerits
Advantages of joint stock company
- Large capital:
A company can collect huge capital for the business through shares and debentures, public deposits, loans etc. Due to huge capital the company can conduct business on a large scale.
- Limited liability:
Usually the liability of members of a company is limited to the extent of uncalled or unpaid shares held by them. Their personal property cannot be seized to meet the company’s liability beyond the above mentioned liability.
- Continuity and stability:
Death, insolvency or insanity of any member of the company will not affect its life and existence. Men may come, and they may go but a company remains forever. It can be wound up under the provision of the act.
- Professional management:
The Company appoints experienced, competent and expert to manage the business. Their services lead to managerial and administrative efficiency and accuracy.
- Economies of scale:
A company operates on a high scale and so it enjoys economies in production, distribution, management and financing.
- Bargaining power:
Compared to other forms of organization, a joint stock company is a strong power in buying as well as in selling of goods because of its large scale production.
- Legal status:
Since the company is created by law, it has separate legal existence compared to its members. Therefore, the members cannot be personally held responsible for the acts of company and company cannot be held liable for the acts of the members.
- Large membership:
The Company is owned by many members- maximum of 50 in the case of private limited company and unlimited number of member in the case of public limited company.
- Transferability of shares:
Shares of Joint Stock Company, especially public companies, are freely transferable. A member who wants to sell his shares can easily do so in the stock market. This encourages the public and other to invest in shares.
Joint Stock Company provides employment to many people directly and indirectly. This leads to higher national income for the country and higher living standard of living for the people.
- Government revenue:
Joint Stock Companies provide revenue to the government in the form of taxes charged directly and indirectly.
- Research and development:
Joint Stock Companies undertakes R&D continuously thus bringing about new and improved products which benefits people.
- Economic development:
Because of Joint Stock Companies there is all round development of trade, commerce and industry. The society in general gains the benefit of the industrial development. Large capital, government revenue, economic development etc. are the advantages of Joint Stock Companies.
Disadvantages of Joint Stock Company
- Difficult formation:
Formation of Joint Stock Company is an expensive and time-consuming process as a number of legal formalities have to be undertaken in order to register the company.
- Lacks flexibility:
The working of a Joint Stock Company is less flexible s compared to other organizations. For very small thing they either have to follow a detailed procedure or obtain sanctions from various authorities. This results in lack of flexibility.
- No business secrecy:
This form of organization lacks business secrecy because it is compulsory for the company to publish accounts and other records
- Excessive government regulation:
The Company is a subject to excessive government control. It has to follow the numerous provision of the companies act. This makes working difficult.
- Delay in decision:
The Joint Stock Company is completely not free to take all decisions and to implement the decisions. Due to excessive government control and democratic set up all decisions are taken in meetings and some decisions require shareholder’s approval. All this leads to delay in decisions.
- Lack of contact with customer:
A company can’t be in a position to maintain intimate contacts with customers. It cannot be able enter to the requirements of each and every customer. Then there is no close personal touch which decreases the competitive strength of the business due to large scale operation.
- Lack of contact with employees:
The top management may not have contact with their employees. This may cause friction and disputes amongst the management and the employees with may affect the worker’s and employee’s morale.
- Conflict of interest:
Many persons are the owners of Joint Stock Company. There can be misunderstanding and jealousy amongst them and these cause problems in operation of business and profit making
- Not suitable for all type of business:
This type of organization is not suitable for business where personalized services are required.
- Exploitation of shareholders:
Sometimes the BOD may misappropriate the fund and mislead the shareholders by window dress report. The directors may even manipulate the trading on the stock exchange. Thus, shareholders can be exploited by corrupt directors.