Merits and demerits of joint stock company

MERITS AND DEMERITS OF JOINT STOCK COMPANY

MERITS

1) large capital

  It is possible for joint stock company to raise the financial resources because there is no maximum limit on membership in public company. Again due to limited liability ,free transferability of shares, etc. People don't hesitate to invest the money.

2)Economies of large scale

 Joint stock company can achieve economies of large scale because of large scale production and distribution. It can provide quality products at reasonable prices to the consumers because some of the benefits of large scale operation are passed on to the consumer.

3) specialized management

 The board of directors of a joint stock company are already talented. Moreover , a joint stock company can afford to appoint specialized effects. Thus, specialized management brings higher returns to the company.

4) Transferability of shares

  The ownership of the company is divided into shares which are freely transferable in a public limited company., I.e. members can buy or sell these shares without taking permission from the company. However, the shares of  private limited company are not freely transferable.

5) Democratic management and control

The shareholders elect the board of directors as their representative to manage the company on behalf of them. Thus, Board of directors are accountable to shareholders. Though policy decision are taken by the board they must be approved by shareholders. If the shareholders are not satisfied with the performance of any directors then he will be replaced by them.

6) public conference

  Joint stock company enjoys  public confidence. The working of joint stock companies in India is governed by the provisions of Indian companies Act, 1956. As per the Act, the company has to get annual accounts audited by practicing chartered accountant. 

7)limited liability

  The most important advantage of joint stock company is limited liability to the extent of unpaid amount of shares held by by members. Their personal property will never be utilized for  payment of debts of the company.

8) scope for growth and expansion

  There is possibility of growth and expansion in the company business. The company can raise large financial resources. Attractive salaries can be paid to engage the services of expert for business expansion and for managing the business professionally. A part of the profit is kept aside in  the form of reserves and ploughed back for business expansion. Loan can be raised from the banks at other financial institutions by hypothecating  some assets of the company.

DEMERITS

1) Complicated formations

 The formation of joint stock company involves too many legal formalities. Promoters have to prepare and submit various documents to the register of companies for approval. E.g. companies Act, 1956. Thus, formations is complicated, costly and time consuming.

2)Excessive government control

A company suffers from unrealistic government control over its working . A company has to follows numerous provisions of the Indian companies Act and other Act. Thus, the company suffers because of unethical directors.

3)selfish management

The management of a joint stock company is in the hands of board of director, some directors may misutilize the company's funds for their personal use. Thus, the company suffers because of unethical  directors.

4)lack of secrecy

Every company must public its annual accounts and certain other important documents, which is compulsory by the Indian companies Act, 1956. Due to lack of secrecy the competitors may take undue advantages of the secrets for their benefits.

5) Delay in decision making

  There is often delay in decision making. Especially when there is need of approval from shareholders a company has to Call the meeting of the shareholders which is a time consuming process.

6)conflicts of interest

 There are often conflicts among various interest groups in the company. There may be conflicts between the directors and shareholders, conflict between management and employees, etc. Which affected the smooth functioning of the company.

7)No personal contact with employees

Due to a very large size of the organization, employees feel that their efforts are not recognized and appreciated. As a result, they feel Demoralized and their productivity declines.

8) high cost of management

 The management of joint stock company from of organization is costly. The formation involves availing of the expert services of many professional like underwrites, financial and technical experts , share brokers, solicitors, bankers, etc. Moreover, the company also appoints highly qualified staff to manage the business activities, to whom attractive salaries are required to be paid. Even the process of dissolution of company is lengthy and costly.