What are the advantages and disadvantages of joint stock companies?
Following are the advantages of Joint Stock Company:
1. Limited Liability : Liability of members of Joint Stock Company is limited to the extent of shares held by them. Hence shareholders assets will not be on stake. This feature attracts large number of investors to invest in the company.
2. Perpetual Existence : A company is an artificial legal person created by law which has its own independent legal status. Its existence is not affected by the death or insolvency of its members.
3. Large Scale Operation : The capacity of the corporate organizations to raise the funds is comparatively high which provide capital for large scale operations. Hence opens the scope for expansion.
4. Transferability of Shares : In a joint stock company it is easy to transfer shares to anyone. But the same is not permitted to private limited company.
5. Raising of Funds : It is easy to raise a large amount of funds as the number of persons contributing to the capital are more.
6. Social Benefit : It offers employment to a large number of people. It facilitates promotion of various ancillary industries. It also donates money for education, community service.
7. Research and Development : It invests a lot of money on research and development for improved production process, improving quality of product, designing and innovating new products etc.
Disadvantages of Joint Stock Company:
1. Formation is not easy : To act as a legal entity a company has to fulfill various legal and procedural formalities making it a complicated process.
2. Double Taxation : This is the biggest disadvantage which the company faces. Firstly, company needs to pay tax for the earned profits and again the shareholders are taxed for the earned income.
3. Control by Board of Directors : After electing directors of the company which manage the business for the company the shareholders become ignorant of their responsibilities. This may be due to lack of interest and lack of proper and timely information.
4. Excessive Government Control : A company has to comply with provisions of several acts, non-compliance of which can cause a company heavy penalty. This affects the smooth functioning of a company.
5. Delay in Policy Decisions : All the legal and procedural formalities which are required to fulfill before making policies of the company delay the policy decisions.
6. Speculation and Manipulation: As the shares of a joint stock company are easily transferable thus the shares are purchased and sold in the stock exchanges on the value or price of a share based on the expected dividend and the reputation of the company.