Joint Stock Company is type of business which gives business ownership rights to share holders by giving them certificate of their shares. These shares can be bought or sold anytime by the people who already purchased them. There is unlimited liability of share holders in United States and limited in Asian countries. It is also a form of business like other types of businesses including public limited company, partnership, sole proprietorship. Every business has its own pros and cons. There are 23 Characteristics or Advantages of Joint stock Company. Most of the companies in stock exchange are best examples. There are also considerable disadvantages of joint stock companies to be looked before making small or huge investment.
In Simpler words, voluntary association made by different persons under state law for specific reason is know is Joint Stock Company. It is started by collection of initial investment by each member. This capital amount is divided into transferable shares with liability of shares to its face value.
“A company is an artificial person created by law with a perpetual succession and a common seal.” – LORD JUSTICE LINDLEY
Board of director are managers of this company. They operate its function under law of country – Different Types of Joint Stock Company are most popular business form for production and business on large scale. It has its own advantages & disadvantages.
Advantages of Joint Stock Company
The liability of each shareholder is limited to the unpaid value of the share holds. If he has already paid the total value of the shares, his liability will be nil.Private assets of the members are not liable to settle the business obligations. But in sole tradership and partnership private property of owners is also to pay the debts of the business.
As there is no restriction for the maximum numbers in the public company, it can attract huge capital from thousand of persons of varying incomes. Thus the problems of deficiency of capital may not arise in this type or organization.
Joint stock company may hire the service of qualified technical and administrative abilities due to its sound financial sources. The management is generally conducted by expert and professional directors. So its sources can be utilized to the maximum for productive purposes. They overcome depression phase of business cycle with their experience to retain in market.
Long Life (Perpetual Succession)
It normally possesses a perpetual life. The death of director or member cannot affect the life of the joint stock company. it has separate life part from its members. On the other side the biggest disadvantage of partnership is that the death of any partner may dissolve the partnership.
Objective of Formation
The basic object of the formation of the joint stock company is to earn profit. Whole profit is not distributed among the share holders but some portion of profit is transferred to reserve fund. So that it may be used at the time of emergency.
Opportunity for Investment
As the company can divide its ownership into shares of small denomination, it is possible for. All groups of society to invest their amount in joint stock company.
Joint stock company is created by law and is supervised by legal authority. So this form of business can easily win the public confidence and faith. This is no added advantage of company that public feel no chances of fraud or misrepresentation. The major difference in partnership and company is Public has less confidence upon one man ownership and partnership.
Growth of Heavy and Risky Industry
Heavy and risky industry may be started only under this organization due to the following factors.
- Limited liability.
- Larger capital.
- Better management and technical abilities.
Separate Legal Existence
It is created by law or by the particular Act of the company. it possesses separate legal existence apart from its members. So it can accept loans, hold property, make contract and open bank accounts in its own name.
The share of public company may easily be transferred to other person and may be disposed of in the stock exchange market. So its members are ways in a position to with draw their capital under its Acts.
Promotion of Thrift
Joint stock company provides the opportunities to general public for investment of their savings. So this tendency promotes the habits of savings and thrift among the public.
Expansion of Business
As it can attract huge amount of capital from issue of shares, debentures and bonds, it is possible to increase its business activities for productive purposes. There is no limit to the maximum number of shareholders in case of public company, capital may be increased and large business may be commenced. But it is not possible in other form of organization due to lack of capital.
Minimum Risk of Loss
There are minimum chance of loss under this organization. If there is loss it will be sustained by a large number of investors. So the hardship cannot be confined into few hands as in the case of partnership.
Chances of Increasing Funds
A joint stock company has wide power by law to raise its effective funds and capital by (a) sales of its debentures. (b) sale of its shares. (c) issue of secured and unsecured bonds ( In advanced counters) (d) Contracting loans on mortgage of its assets.
Joint stock company provides the job opportunities to million of people working there in various industrial units.
As management of the company is conducted by few persons known as board of directors, they are in a position to bring new changes in the business. Capital sources and human abilities can be adjusted to the new situation. If the director is found indifferent in this respect he may be removed from his office.
It can enjoy the benefits and economy of large scale production, management and distribution. By introducing better methods of production they try to save or deduce many unnecessary expenditure.
Growth of Economic activities
Joint stock companies increase the economic activities in the country. These provides the major source of revenue for the government. Industrial units produce the goods at large scale and thus provide the necessitates of life at low price. so the healthy growth of joint stock companies may bring positive result in the economic structure of the country.
Loans at Company Name
Company can receive loans in its own name which are payable by the company itself. But in the partnership, the loans are obtained by the partners by their own names which create various problems for them.
Its activities are controlled by many central or provincial departments. They are numerous rules which must have to be carried into effect by the company. It has to audit its account and to submit the various reports to Registrar office. It thus cannot operate freely without any interference.
Numbers of Members
There are large numbers of members in the joint stock company. In case of public company minimum number of members is seven and there is no restriction for the maximum number of members. In case of private company, minimum number of members is two and maximum is fifty.
Agreements or Contracts
As joint stock company enjoys separates existence it may enter into trade agreements by in its own name.
Change the Nature of Business
In the partnership, the nature of business may easily be changed with mutual consent off partners. But object clause of the Memorandum of Association which also describes the nature of business may not be Changed except the sanction of the court.