Advantages and disadvantages of joint stock companies posted by
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
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
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.