Joint Stock Company | Meaning | Advantages | Disadvantages
What is a Joint Stock Company?
Joint Stock Company is simply an artificial person created by law. It has got separate legal existence. It is a form of business organization that is owned by a large number of people. In case of private limited company, minimum number of shareholders is 2 and the maximum is 50, while in case of public limited company minimum number of shareholders is 7 and there is no maximum limit.
Registration: Registration of Joint Stock Company is compulsory by law. Owners of the joint stock company are known as shareholders.
Board of Directors: It is not possible for each shareholder to participate in the management affairs of the business. Hence, all the shareholders use their voting rights and elect a body for the management of routine affairs of the business. This elected body is known as Board of Directors. Hence, the Board of directors is responsible to manage the affairs of the business.
Profit Sharing: Profit and loss of company is divided among the shareholders according to the nominal value shares held by them.
Capital: Capital of the joint stock is divided into small parts or units of nominal value. Each unit is known as a share. A share is one’s share in the share capital of the company. Shares of the public limited company are traded openly in the market.
Advantages of Joint Stock Company
1. A joint stock company raises funds through contributions from a large number of people. Hence, it enjoys more financial resources.
2. Liability of the members in a joint stock company is limited to the value of shares they held by them in the company. The personal property of members cannot be utilized for meeting the obligations and debts of the company.
3. The company is managed by board of directors who are professionals in nature. Hence, there exists professional management and the Board is accountable to all their investors.
4. Large-scale production and expansion of business is possible since there is an availability of large financial resources and human resources.
5. The business has long life and it is not affected by the incapacity of shareholders.
6. The risk of loss is spread among various members.
7. There is adequate scope for growth and expansion of business.
8. A member of public limited company can easily transfer share to any one without the consent of other members.
9. It enjoys goodwill and holds better image among the public if the company declares dividend regularly.
Disadvantages of Joint Stock Company
1. It is subject to corporation tax. A company is subject to high tax rates and the shareholders are subjected to double taxation.
2. Establishing a joint stock organization is not easy. A company has to go through various formalities as prescribed by the Companies Act in order to be registered.
3. The company is required to file its accounts with Registrars of companies and tax authorities annually.
4. Joint stock companies are subject to government scrutiny.
5. There always exists difference of opinion and conflicts between the shareholders and board of directors. Shareholders arc interested in declaration of high dividend whereas board of directors likes to retain the surplus profit for the expansion of the business.
6. Decisions are not taken quickly in joint stock companies.
7. The directors who manage the affairs of the company may embezzle funds in Joint stock company.
8. There is no flexibility in operation of business.
