Define Joint Stock Company? Explain its merits and demerits?

Define Joint Stock Company? Explain its merits and demerits?

Meaning: -A Joint stock is an incorporated association, which is an artificial person, having independent legal status with a perpetual succession, a common seal, a common capital of transferable shares carrying limited capital. In other words, Joint Stock Company is a business organization organized and owned by shareholders but managed by directors. But the directors must have to purchase the Qualification of shares.

Definition: -- PROF. (H.L.Haney) A joint stock company is a voluntary association of individual for profit, having its capital divided into transferable shares, the ownership of which is the condition of membership.

The advantages of joint stock company’s points explained briefly as under:

1.      Large Capital: - A joint stock company can raise large amount of funds by way of shares, debentures, public deposits, loans and advance from bank and financial institution. This is due to no limit in the membership of public limited company.

2.      Limited Liability: -As compared to other forms of organization a joint stock company is the best type of business organization. The liability of members of a joint stock company is limited to the face value of the shares purchased by them.

3.      Transferability of Shares: -Shares of the Joint Stock Companies can be easily transferred. The transferability of shares is always welcome in this of organization. A member can sell his shares in the open market at any time or transfer it at any one. This encourages the public and others to invest in shares.

4.      Specialised Management: -A Joint Stock company can afford to appoint specialised experts in the field of production and distribution. Specialised Management brings in higher returns to the company and as such the company can further expand diversify its activity.

5.      Scope for Expansions: -Due to availability of huge funds, Expert management, stables and continues existence, public confidence is created. It enables the company to make progress and expand its activities.

6.      Statutory Regulations: - the formation of companies is regulated by the provisions of the Indian companies Act 1956. The working of a company ism fully regulated by the company act. Sending report regularly to the registrar of companies, maintenance of statutory books, this will help to create Public confidence in this form of organization.

7.      Democratic Management and Control: -The management and control of a joint stock company is in the hands of highly skilled Board of Directors. The Board of Directors are professional managers who efficiently look after the management and control of the organisation. The shareholders have the right to remove then directors if the shareholders find that the directors are insufficient or corrupt.

The disadvantages of Joint stock company’s points are explained briefly as under:-

1.      Complicated Formation: -The promotion and formation of a joint stock company is complicated. A   number of legal formalities have to be completed before its registration. Thus formation is time consuming.

2.      Lack of Secrecy: -Business secrecy cannot be maintained in the joint stock company. All the public limited companies have to publish their final accounts as per the provisions of the companies. And this may result in lack of secrecy of business matters.

3.      Selfish Management: -The directors of the company are Infact the representatives of the shareholders. They are the agents, managers and trustees of the company. But they misuse the power, because of the inactiveness and passive nature of the share holders.

4.      Excessive Government Control: -The Joint Stock Companies are subject to excessive government control. A company suffers from too much of unrealistic controls over its working through government interference. Excessive controls create a lot of obstacles in the smooth working of a company.

5.      Delay in Decision Making: -The process of decisions making is slow. Because the decisions are to be taken only in the meeting. As the procedure of the meeting is lengthy and time consuming. Hence, there is delay in decisions and actions.

6.      Conflict of Interest: -There is often conflict of interests among the various parties in a joint stock company. There may be disputes between the management and employees. Again, there may be disputes between the directors and shareholders.

7.      Problem of Flexibility: -A Joint Stock Company is less flexible as compared to sole trading and partnership firm. This is because; it cannot change or take immediate decisions. Again, if they want their line of business may require the approval of the shareholders.