Introduction: - A
Joint stock company is a separate entity formed by a number of persons
contributing a fixed capital in the formation of shares (sharing the ownership
of the company) with liability of each share holder being limited to his
investment in the company only. The management of the company is done
professionally by experts who are the representatives of the
shareholders are called the board of Directors.
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Definition: - “A joint
stock company is a voluntary association of individual for profit, having its
capital divided into transferable shares, the ownership of which is the condition
of membership.” Defined by.............. PROF. (H.L.Haney)
Merits
of Joint Stock Company is as Follows: -
1. Large
Capital: -It is possible for a joint stock company to raise huge
financial resources. There is not maximum limit on membership in a public
limited company. Shares issued are available in small denominations. Therefore
people can invest any small amount as per their needs and capacity due to the
features of limited liability. Free transferability of shares etc. many
investors are attracted to become shareholders of the company. Loans can be
taken from banks and other financial institutions by the company.
2. Democratic
Management: - Though
shareholders elect the Board of Directors, who manage the business efficiently,
the directors are accountable to shareholders, their activities are supervised
and controlled by shareholders indirectly.
3. Transferability
of Shares: -There is free transferability of shares in a public
limited company. No permission is required to be sought from the directors or
members of the company for buying or selling shares. However, a private limited
company, does not permit free transferability of shares.
4. Limited
Liability: - The liability of a
member in a public limited company is limited to the extent of the unpaid
amount of the shares held by him. Since the company has an independent legal
status, its liabilities are its own.
5. Expert
Services: - Due to large
financial resources available with joint stock company, it can appoint experts
for managing each area or functions of the company business, by paying
attractive salaries to them, these brings in a great degree of professionalism
and thereby, efficiency in management of business.
6. Relief
Taxation: - The companies are
required to pay taxes at flat rate. The amount of tax on a high taxable income
therefore may be less for a joint stock company than individuals in a same tax
bracket.
7. Public
Confidence: - Joint stock
company enjoys public confidence. The working of joint stock companies in India
is governed by the provisions of Indian Companies Act, 1956.
8. Scope
for Growth and Expansion: - There
is possibility of growth and expansion in the company business. The company can
raise large financial resources. Attractive salaries can be paid to engage the
services of experts for business expansion and for managing the business
professionally.
Demerits
of Joint Stock Company is as Follows: -
1. Difficulty
in Formation: -The formation of the company is in itself a very
difficult and involves too many formalities. Promoters have to prepare and
submit various documents to the registrar of companies for approval i.e.
Articles of Association, Memorandum of Association etc. the public limited
company cannot commence business without obtaining a certificate of
commencement of business. Registration of Joint Stock Companies is compulsory
as per Indian Companies Act, 1956. Thus the formation is complicated, costly
and time consuming.
2. Delay
in Decisions: - In sole trading
concern, and partnership firm decisions can be taken quickly. Company business
is managed by Board of Directors who are not owners of the company. Therefore, there
is no direct motivation for directors to give their best to the company.
Moreover, for taking various decisions and getting them approved from share
holders, they have to hold board Meeting and share holders meeting, for which a
proper procedure has to be followed. That results into delay in decision
making, good business opportunities may be lost.
3. Excessive
Government Control: - There is
a lot of government interference in the working of the company. Various rules
and regulation of the companies Act have to be strictly followed by the
company, the non – compliance of any of these provisions results into penalties
for the officers involved.
4. High
cost of Management: - The
management of joint stock company form of organization is costly. The formation
involves availing of the expert services of many professional like
underwriters, financial and technical experts, share brokers, solicitors,
bankers etc.
5. Undue
Speculation: -since directors are responsible for the management of the
company, they sometime use the confidential information for speculation and for
personal gains. This results in sudden fluctuations in prices of shares in
stock exchange, adversely affecting the public confidence.
6. No
Personal Contact: -Due to very large size of the organization,
employees feel that their efforts are not recognized and appreciated, their
work related problems are not taken care of. as a result they feel demoralized
and their productivity declines.
7. Lack
of Secrecy: -There is no business secrecy involved in the company form
of organization since it has to fulfill various statutory requirements, e.g. as
per Indian Companies Act, 1956, every company must publish its
annual accounts and certain other documents.
8. No Direct Effort Reward Relationship: -Since the ownership
and management are separate, there is no direct relationship between the
efforts and rewards. This can be de motivating for the
owners of the company
