We can say that join stock company is the life blood of a country’s economy. But there still some problem in join stock company. Now we will provide some advantages and disadvantages of join stock company in detail below:
Advantages and disadvantages of joint stock company
A joint stock company is an association or organization of many persons formed for the purpose of profit, possessing a common capital contributed by the members composing it; such capital being divided into shares of which each member holds one or more and the liability of such a members is limited of the face value of the shares he possess.
There are some advantages of joint stock companies which are given below:
Advantages of Joint Stock Company
- Adequacy of capital: Generally a Joint Stock Company has the opportunity to raise huge capital than other types of business. If the company needs money it can sell its shares to the public.
- Limited liability: The liability of a shareholder is limited to the face value of the shares he holds. He has no further liability if he has paid the full value of the shares that he has agreed to pay.
- Perpetual succession: Perpetual succession is another important advantage of joint Stock Company. A joint stock company survives, even if all members are willing to shut down the company or if all members die in natural calamities.
- Transfer ability of shares: Shareholders have the right to sell the shares of a joint stock company to those who are interested to buy. This right to sell shares of joint Stock Company gives an scope to attract large number of shareholders.
- Managerial efficiency: A company can secure the services of highly qualified persons who are experts in different fields of business management. It is through the company that the capital and business ability can be linked together for the benefit of both the individual investor and the community as a whole.
- Tax relief: A company enjoys greater tax relief as compared to other forms of business organizations. Company pays lower tax on a higher income as it pays tax on a flat rate. Moreover, a company gets some tax concessions, if it establishes operation in backward area. Some tax incentives are available for export promotion also.
- Advantages of large-scale business: Since joint stock company has huge capital and large number of shareholders; it can invest in large scale production in order to meet the requirements of people at large.
- Stability: Stability is none of the most important advantages of company Shareholders death, retirement, or sale of stock do not lead to dissolution of the business.
Disadvantages of Joint Stock Company
As was true with other forms of business organization, the company has also some disadvantages which are discussed below:
- Complexity information: There are a lot of legal requirements to start a company since a company is created under law, its formations a complex task.
- Lack of control: The buying and selling of shares of a company is the only real control an owner has. Since the number of shareholders is determined by the number of shares of a company, control by the board of directors is difficult.
Double taxation: In case of company, there are two systems of tax payment. First, on the basis of profit earned by the company. Second, on the basis of dividend earn by the shareholders. So the shareholders suffer from double taxation.
- Lack of secrecy: A company must provide each shareholder with an annual report. When a large number of reports are issued, the reports become public. These reports present data on sales volume, profit, total assets, and other financial matters. Public disclosure of these data enables competitors and other outsiders to see the company’s financial condition.
- Lack of personal interest: In most corporations, except the small ones, management and ownership are separate. This separation can result in a lack of personal interest in the success of the company.
- Credit limitations: Bank and financial institutions have to consider the fact of limited liability of shareholders of a company. If a company fails, its creditors can look only to the assets of the business to satisfy claims.
Other Content of Joint Stock Company:
- Definition of Joint Stock Company
- Characteristics / Features of Joint Stock Company
- Types of Joint Stock Company