Q.5 Discuss the advantages of Joint Stock Company?
Ans: ADVANTAGES OF JOINT STOCK COMPANY
Following are the important advantages of Joint Stock Company:
1. LIMITED LIABILITY
Having limited liability of the owners, the person who fears risk may also invest capital in the business. The shareholders are not liable to pay anything more than the. face value of their shares. Therefore, the company can start the business, which may have even greater risk.
2. LARGE CPAITAL OR MORE CAPITAL
Unlike individual proprietorship or partnership, a joint stock company can arrange capital in large quantity. Lt can obtain capital easily and even at a lower rate of interest by floating its shares in the market.
3. LARGE SCALE PRODUCTION
The large-scale production can be established on the basis of the joint stock company. Thus, the company can reap all the advantages of the large-scale production.
4. LONG LIFE
The company has long life or is of more permanent nature. It does not make any difference to the company if the death of a shareholder occurs or he sells his shares to another person. The shareholders may change, but the company functions normally.
5. LONG PERIOD PROJECT
A joint stock company is the most suitable for the project, which have a large gap between the investment and the production of goods. An individual proprietor or partnership firm never has the courage to invest in such long period projects.
6. EASY TO SEPARATE
Unlike individual proprietorship or partnership its shareholders can separate from the company by selling their shares to others.
7. BENEFITS OF SMALL SAVING
One can invest his small savings of even Rs. 100 by purchasing the shares of the company way, small savings can be utilized in the large-scale production, which build the strong base economy.
EASY TO INCRESE CAPITAL
It is quite easy for a joint stock company to raise more capital whenever required, by new shares and selling debentures in the market.
SPREAD OF RISK
The risk of the company is spread over a large number of shareholders. Risk is not limited to a few persons but is spread overall the owners of the company. One can diversify his risk by purchasing the shares of different companies.
10. CHAMPION OF DFMOCRACY
The company is managed or run on democratic system. The shareholders elect the Board of Directors. They can change the directors if they are dissatisfied with their performance. They can make open criticism of the wrong and unsuitable policies of the board in their annual general meeting.
11. SERVICES OF ABLE PERSONS
Persons who do not have capital but are rich in managerial or business ability are appointed as managers; etc. Thus, a company can take advantages of the services of able and efficient persons.
12. ECONOMIC AND TECHNICAL DEVELOPMENT
The emergence of joint stock companies has facilitated large-scale production, which has helped the economic and technical development. Having huge capital and more resources, it can spend them for research on new methods of production and modern type of machines.
13. RESEARCH AND EXPERIMENTS
The Joint stock company has enough capital to expand its business as well as for research and experiment. Research and experiments lead to inventions and innovations. It greatly improves and revolutionizes the technique of production.
14. DEMOCRATIC MANAGEMENT
A joint stock company is managed by the Board of Director, which is elected by its shareholders through the democratic system of casting vote.
The Govt. auditors audit the balance sheets of the company. The joint stock company is well protected against the fraudulent of the directors, if any.
16. TRANSFER OF SHARES
In joint stock company the shares of public limited company can easily transferred or disposed off.
17. EXPANISION OF BUSINESS
Due to sells, the shares, bonds and debentures a joint stock company collect or large amount of capital, which helps to expand the business.
18. EMPLOYMENT OPPORUTNITY
Due to wide operation of a joint stock company also plays very important role in providing employment opportunities within country.
19. PUBLIC CONFIDENCE
It is created by law and also supervised according to the provision of the government. So it can easily win the public interest and confidence.
20. HIGH RATE OF PROFIT
Due to use of large capital and technical skills the company’s cost of production reduces and on the other hand rate of profit increases.
21. END OF CORRUPTION
The government audits the various statement of the joint stock company from time to time so the managing authorities of the company get less change of corruption.
22. DIFFERENT KINDS OF SHARES
The company issues different kinds of shares, e.g. ordinary and preferred shares. The investors who want to share the profit or loss of the business and issues debentures to these investors who want to receive interest at fixed rate.
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DISADVANTAGES OF JOINT STOCK COMPANY