Advantages and Disadvantages of Joint Stock Company

A joint stock company is an organisation in which all of its shareholders have a common ownership interest. Everyone involved owns a specific amount of stock, which is typically represented by a share of the company’s stock.

Each share of a joint stock company is transferable, and if the company is publicly traded, its shares are traded on stock exchanges that are registered with the SEC. It is possible to transfer shares in a private joint stock company from one party to another party. However, the transfer is restricted by the terms of the agreement and the presence of family members.

Types of Joint Stock Company

The joint stock company is divided into three different types.

• Chartered Company – A chartered company is a business entity that has been established by the king or the head of the state.
• Statutory Company – It is referred to as a “statutory company” when a corporation is established by an act of parliament. This is a situation in which the act defines all of the power, object, right, and responsibility.
• Registered Company – A registered company is an organisation that is formed by registering under the laws of the country in which it is located.

Example of Joint Stock Company

Few examples are mentioned below.

• Indian Oil Corporation Ltd.
• Tata Motors Ltd.
• Reliance Industries Ltd.
• State Bank of India
• Jindal Steel & Power Ltd.
• Grasim Industries Ltd.

Characteristics of a Joint-Stock Company

Such a business venture has the following features:

1. Entirely Separate Legal Entity: A Joint-Stock Company, in contrast to a partnership or a proprietorship firm, is legally distinct from its owners. It is a separate legal entity from the rest of the organisation. A Company’s activities are not liable for the actions of any one of its members. Such a company, on the other hand, will not be reliant on any owner or shareholder to determine its future course of action.

Understanding the distinction between a partnership and a Joint-Stock Company will be easier if you remember this point.

Is Incorporated: It is necessary to incorporate a Joint-Stock company. If the proper procedures are not followed, the organisation’s legal status will be terminated. Non-incorporation is not an option in this situation.

Perpetual Succession: A Joint-Stock Company, in contrast to a proprietorship business, which is solely reliant on its single owner, is not reliant on any of its members. Members come and go; shares are bought and sold; dividends are earned and distributed; and so on for the duration of the Company. This point is directly related to the fact that it is considered a separate legal entity.

Number of Members: The number of members that a corporation can have is governed by certain laws. It is mandatory for any public limited company to have at least seven members – there is no upper limit. A private limited company must have at least two members in order to be formed. Similar restrictions apply to partnerships, with no more than 10 active partners allowed in a partnership firm.

Transferable Shares: Everyone who owns stock has the ability to trade their shares with other potential investors. If you are asked to explain the characteristics of a Joint-Stock Company, it is important that you keep these points in mind.

Advantages of a Joint-Stock Company

 The enormous capital required by modern enterprises would be impossible to obtain under other organisational structures, such as sole proprietorship or even partnership, because of the nature of the capital required. Because of its broad appeal to investors of all classes, the joint stock company has the potential to raise the substantial amounts of capital required by large-scale enterprises.

Company Shareholder Liability- The liability of company shareholders is limited to the face value of the shares that they have purchased. In terms of investment, it has a stimulant effect. When it comes to collecting the company’s debts, the private property of the shareholder is not attachable.

The organisation of a company as a separate legal entity confers on it a quality of permanence or continuity that distinguishes it from other businesses. A company’s existence is indefinite because it is an incorporated entity.

Economies of Scale- Because the company operates on a large scale, it would result in the realisation of economies of scale in the areas of purchasing, management, distribution, and selling, among other things. Because of these economies, consumers would be able to purchase goods at a lower cost.

Expansion Potential- Because there is no restriction on the maximum number of members in a public company, expanding the business is simple and can be accomplished through the issuance of new shares and debentures.

Public Confidence- The formation and operation of corporations are tightly regulated by the provisions of the Companies Act of incorporation and operation of corporations. The provisions requiring the publication of certain documents, such as financial statements and director’s reports, among other things, instil confidence in the public. Their financial statements have been audited by a chartered accountant and are to be made public. The public gains confidence in the company’s ability to function as a result of these actions.

Transferability of Shares- Shareholders in a publicly traded company have the right to transfer their ownership interests in the company to others. The shares of the majority of joint stock companies are traded on the stock exchange, making them readily available for sale.

Disadvantages of a Joint-Stock Company

Difficulty in forming a company- There are numerous legal formalities and procedures that must be followed in order to form a corporation. It will have to approach a large number of people in order to raise its capital, and it will be unable to begin operations until it has obtained both a certificate of incorporation and a certificate to commence operations.

Lack of Confidentiality- Every issue is discussed at length during the board of directors’ meeting. The minutes of the meeting, as well as the company’s profit and loss statements, among other things, must be made public. It is difficult to maintain secrecy in this environment.

Slower decision-making in the company form of organisation- In the company form of organisation, all important decisions are made by the board of directors and shareholders in a general meeting. As a result, the decision-making process takes a long time. The board of directors has frequently found itself at the mercy of bureaucratic red tape.

Concentration of Economic Power- The company form of organisation allows for the concentration of economic power in a small number of individuals or organisations. It makes it simple to form monopolistic combinations, which in turn results in monopoly power. Large joint stock companies have a tendency to group together or form associations in order to exercise monopolistic power, which can be detrimental to other firms in the same industry or to consumers.

Individuals without a personal stake in the business- In a company form of organisation, day-to-day management is vested in salaried employees or executives who have no personal stake in the business. Employee motivation may be reduced as a result, and efficiency may suffer as a result.

Conclusion:

A Joint-Stock company is a type of corporation that almost all of the major corporations that we read about in the newspapers or see on television are. Neither sole proprietorships nor partnerships are capable of challenging the global dominance of a Joint-Stock Company. This model underpins the operations of all large-scale enterprises.