Q2-What are the advantages and disadvantages of a company? Explain in detail.
ADVANTAGES OF COMPANY
The advantages of the company are as follows.
- Limited Liability:
Unlike sole proprietorship and partnership, the company has a limited liability. The liability of owners, who are known here as shareholders, is limited to the amount invested by them in the business.
- Efficiency Of Management:
Shareholders cannot participate in the management of the company. They elect a board of directors as their representatives who hire a team of experts, skilled and qualified personnel by whom the company is run. Efficiency of management is achieved by these competent and qualified personnel.
- Large Size:
The company is large in capital, volume of business, number of employees, and other financial resources. The sole proprietorship, on the other hand, is small in financial and human resources. In partnership too, capital is limited by the contribution of the partners.
- Ease of Expansion:
Sole proprietorship can not expand without changing its form. Partnership can be expanded by one or two partners admission rendering the old one dissolved. But a company has an unlimited opportunity to expand its capital and operations. It can raise any amount of funds which shareholders are willing to invest.
- Long Life:
Unlike sole proprietorship and partnership, the company has unlimited life. It can not be liquidated by admission, retirement, insanity, bankruptcy, or death of a shareholders.
DISADVANTAGES OF COMPANY
The disadvantages of the company are as follows.
The income if the company is dually taxed, first as an income of the company and second as the income of shareholders. The company has also to pay corporate tax which is imposed on its form.
- Organizational Expenses:
A great cost is incurred in the formation of the company. A corporation has to pay registration free. It has to pay a legal fee to its legal advisors who prepare memorandum and articles of association. Cost also incurs in the lubrication in the newspapers. Printing of share certificate is still another cost.
- Lack Of Secrecy:
Business and financial secrecy cannot be maintained in the company. Every year thousands of copies of financial annual statements are to be distributed to the company shareholders explaining the company’s financial and profit position. In sole proprietorship and partnership maintenance of secrecy is no problem.
- Lack Of Credit Standing:
Unlike sole proprietorship and partnership the company does not enjoy a high credit standing as the creditor knows that his loan can only be recovered from the business assets of the company. The personal property of the shareholders cannot be utilized if the company assets fall short in the settlement of debts.
- Lack Of Personal interest:
The administration of the company is not in the hands of shareholders. It is run by employees who are only interested to the extent of their assigned tasks to justify their salaries. Profits or losses of the company usually do not effect the status of employees. Therefore, they lack in the interest for the welfare of the company.
- Difficulty In Formation:
Establishing a company is quite difficult and requires many formalities to be met unlike sole proprietor ship or partnership that can be formed fairly easily.
- Difficulty In Liquidation:
It is not easy to put an end to the life of the company. To end a company many steps will have to e taken and legal requirements fulfilled. On the other hand, sole proprietorship and partnership forms of business organization can be dissolved easily.