What are the Advantages and Limitations of joint stock companies?

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The Company form of organisation is considered the most ideal form of organisation, when the nature of business operation is on a large scale. It’s limit to liability on members is also another factor which makes it most ideally suited than any other form of organisation. The following are the advantages of the company form of organisation.

1. Huge capital:

As the number of members is not restricted, except in case of Private Companies, it is easy to raise huge amount of capital for a Joint Stock Company.

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2. Large scale operation:

The companies enjoy the benefits of large scale operation. The expenses will be less and the cost of purchase would be less, as a result the profits would be more.

3. Limited liability:

The members who invest money are liable towards the losses of the company only to the extent of the value of investment made by them in the company. As there are more members, the amount of loss is spread on all of them and therefore it would be less for each investor.

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4. Continuity of business:

The operations of a company are not affected by the death, insanity or insolvency of any shareholder of the company. The business is carried on for a long period of time.

5. Easy transfer of shares:

The shares can be easily transferred by the shareholders. They can easily sell the shares if they require money. This enables the company to keep its capital intact for business needs.

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6. Democratic operations:

The shareholders in the general meeting participate in decision-making. As a result the decision taken would be in the best interests of all the shareholders and the company.

7. Availability of credit:

A company has better chances of obtaining finance and credit facility as it enjoys better public confidence and reputation in the market.

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8. Easy to expand:

The scope of expansion of business activities is greater because the company has greater resources and sources for finance.

9. Better management:

Since the Directors of Companies are elected by the shareholders, they will elect efficient people who will manage the business affairs in an efficient manner.

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10. Government control:

The existence of a company is regulated by the Government right from its incorporation till it’s winding up. As a result, the shareholders will enjoy the benefits of not being cheated by the company. The interests of the shareholders would be well protected.

Limitations:

The Joint Stock Companies, however, are not free from drawbacks which are as follows:

1. Excessive legal formalities:

The excessive legal formalities to be followed from inception till liquidation makes it very difficult and time consuming for the management of companies.

2. Separation of ownership and control:

As the shareholders do not take part in the day to day affairs of the company activities, the management may not carry out the activities in an efficient manner.

3. Absence of personal touch:

The transaction of the public with company would be restricted to the employees of a company and the owners may not have direct contact with the public. This may not help a company in establishing good relationship with the public.

4. Red-tapism and delay in decision making:

There are chances of delay in decision-making because of excessive formalities and urgent matters may not be attended to immediately.

5. Disunity in management:

There may be disunity among shareholders and Directors of companies. Personal conflicts may affect business operations as a result of disunity among members.

6. Reckless speculation:

As the shares of companies can be easily sold or bought, this will increase unnecessary and reckless speculation in the stock market and if the share value decreases in the market, the image of the company goes down in the eyes of public.

7. Neglect of minority interests:

If the decisions of a majority of shareholders influence the company’s operations, the interests of the minorities would not be considered by the company. This is against the democratic principles.

8. Greater chance of fraud:

As the shareholders are not directly involved in the affairs of a company the representatives may indulge in fraudulent activities in their own selfish interests.

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