We can say that a joint stock company is the lifeblood of a country’s economy. But there are still some problems with the joint-stock company. Now we will provide some advantages and disadvantages of joint 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 is divided into shares of which each member holds one or more and the liability of such members is limited of the face value of the shares he possesses.
There are some advantages of joint-stock companies which are given below:
Advantages of Joint Stock Company
1. 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.
2. 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.
3. Perpetual succession: Perpetual succession is another important advantage of a 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.
4. Transferability 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 companies gives scope to attract a large number of shareholders.
5. 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.
6. Tax relief: A company enjoys greater tax relief as compared to other forms of business organizations. The company pays lower taxes on a higher income than it pays tax on a flat rate. Moreover, a company gets some tax concessions, if it establishes operations in a backward area. Some tax incentives are available for export promotion also.
7. Advantages of large-scale business: Since a joint-stock company has huge capital and a large number of shareholders; it can invest in large-scale production in order to meet the requirements of people at large.
8. Stability: Stability is none of the most important advantages of a company Shareholders’ death, retirement, or sale of stock do not lead to the 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:
1. Complexity information: There are a lot of legal requirements to start a company since a company is created under the law, its formation is a complex task.
2. 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.
3. Double taxation: In the case of a company, there are two systems of tax payment. First, on the basis of profit earned by the company. Second, on the basis of dividends earned by the shareholders. So the shareholders suffer from double taxation.
4. 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.
5. 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.
6. Credit limitations: Banks 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.
Hope you find all advantages and disadvantages of joint stock company otherwise comment below.
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4 thoughts on “Advantages and Disadvantages of Joint Stock Company”
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I have a doubt,
In advantages of JSC, you have mentioned that it pays tax @ flat rate but in disadvantages you have written about double taxation. Can you be a bit more specific and clear. Hope to get reply soon.
Thanks for visiting the website and sorry for late replay. You discover a good topic and I agree that this is little bit confusing to have same topic in both advantage and disadvantage. Let’s clear the matter
Joint stock companies pay less tax than other forms of business organization obviously this is advantage for a joint stock company.
On the other hand when company distribute profit to their share holder it treated as personal income so, government impose tax to share holder for this income. We described it as disadvantages because company already paid tax for this income.
Hope this will clear your doubt. Please feel free to make any comment and question.