It is popular type of business running across the globe under different territory based rules and regulation along with different Joint Stock Company Disadvantages. The driving factors of this business type are different characteristics of joint stock company which includes its legal entity in state, people trust and many other. Companies are formed with legal ordinance under country law. There can be minimum 2 and maximum 50 numbers of share holders in Private limited company and minimum 7 to no maximum number of share holders in Public Limited Company.
Joint Stock Company Disadvantages
The process of the formation all types of joint stock company is very complicated. It requires long time and formalities. There are many legal documents which must be prepared and submitted to the registrar’s office before its formation.
Joint stock company is a costly organization. Certain fees and other charges during the operation are paid to the government. Many persons are engaged in various departments and heavy salaries are paid to them. So its financial source are utilized in unproductive sectors.
Concentration of Control
The management of the joint stock company is concentrated into few hands known as board of directors. The shareholders who are the actual owners are not entitled to participate in the affairs of the company. So, they cannot know the internal activities of the directors who take undue benefits from their ignorance.
Limited Personal Interest
Its ownership belongs to thousand of persons who do not know each other. Secondly the business activities are conducted by paid persons who do not take interest to create direct relationship with public. SO, business may suffer loss due to the absence of personal relation.
Promotion of Speculation
The price of the shares fluctuate at the stock exchange due to the various factors. This promotes careless speculation in the country which results in trouble for the public.
Lack of Responsibility
Directors generally employ their friends and relatives on key jobs. But these persons are incompetent and inexperienced to conduct and follow the affairs of business. So they cannot perform their professional duties with great responsibility.
Growth of Monopoly
Growth of joint stock companies lead to the monopoly which is always against the public interest. It trees to have monopolistic control over the market. So this becomes the cause of the sufferings of the peoples and dissolution of the small firm.
Conflict of Interest
There are various groups in the joint stock company who have different voting rights, power and share in the dividend. This disparity creates the conflict of interest between shareholders and management group and among different types of share holders which results in misunderstanding friction and exploitation of shareholders.
Absence of Mutual Sprit
It is highly essential for the successful operation of the company that there must be spirit of mutual help among the members. But this quality cannot be found in the company due to transfer ability of shares.
The following are the drawbacks of the growth of joint stock company:
- Just rate of wages are not paid to workers.
- Working conditions are not improved.
- Fringe benefits are not provided.
- Human prestige is injured.
- Devices of manipulation have been developed.
- Unhealthy atmosphere with in the industry has affected the health of employees.
So the foregoing defects have created the great hatred and discriminate between the employers and employees.
Corruption and Fraud
Some shrewd promoters present very bright picture in prospectus to attract capital from public. Thus they deceive innocent investors for accomplishment of their selfish ends. Moreover, big industrialists create corruption in the political life of the country.
Concentration of Wealth
After the introduction of the joint stock company, the combination among the various business units has been taking place to a great extent which causes the concentration of wealth into few hands. It has split up the society into two groups i.e. rich and poor. The rich have become richer and the poor have become poor.
Leakage of Secrecy
As there is compulsion by law for public company to publish its accounts and submit various reports to registrar, the secrecy cannot be maintained for ever. Employees may leak out the secrecy of trade agreement, technique or production, formula and other necessary matters.
Directors know the internal affairs of the company, but they do not present true picture before the shareholders in their respective meeting. So interested parties may not know the actual performance of their business.
Lack of Freedom
There is much interference during the operation of the joint stock company from various government authorities. There is also compulsion by law to submit various report to registrar’s office. So this organization cannot perform its function freely.