Advantages of Joint Stock Company:

Huge resources:

company can raise large amount of resources from the genera public by issuing
shares. Since, there is no maximum limit of the number of shareholders ii case
of public company, fresh shares can be issued to meet the financial
requirement. Capita can also be obtained by issuing debentures and accepting
public deposits.
Limited liability:
liability of the shareholders is limited to the extent of the face value of the
shares held by them or guarantee given by them. The shareholders are not liable
personally for the payment of debt of the company. Thus, limited liability
encourages the investors to put their money in the shares of the company.
Transferability of shares:
shares of the public company are transferable without any restriction. A
shareholder can sell his shares at any time to anybody in the stock exchange
Therefore, the conservative and cautious investors are also attracted to invest
in the shares of public company. This brings liquidity to the investors.
Stability of existence:
joint stock company enjoys perpetual succession. It continues for a long period
of time because it is unaffected by the death, insolvency of the shareholders
directors. Change of ownership and management also does not affect the
continuity of the business.
Efficient management:
company can hire the services of professional manager for its functional areas
because of its financial strength. The directors who look after the management
of the company are generally experienced and persons of business acumen
Therefore, the management of a company is sure to be efficient.
Scope for expansion:
company can generate huge financial resources by issuing shares and debentures
to finance new projects. Companies also transfer a portion of their profit to
reserve which can be utilised for future expansion. The managerial capabilities
a the disposal of a company helps it for planning the future expansion and growth.
Economies of large scale production:
company is in a position to undertake large scale operation because of its huge
financial resources. When the scale of operations i large, the economies in
buying, selling, production etc. are enjoyed by the undertaking. The economies
of large scale enables the company to produce goods at lower cost and supply
the same to the consumers at cheaper prices.
Public confidence:
company submits required information to the Government and other authorities at
regular intervals. The accounts of the company are audited by chartered
accountants and also published for the information of the stakeholders and
others. This enables a company to enjoy the trust and confidence of the public.
Social benefits:
joint stock company provides a number of benefits to the society. 1 creates
employment opportunity, investment opportunity, utilises the unutilised natural
resource of the nation, supplies quality products and services at cheaper rate
and generates revenue for the Government and also undertakes many
infrastructural developmental programmes in the country.
Diffused risk:
entire business risk of a company is distributed over a large number of
shareholders. Thus, the risk is reduced for each shareholder. No shareholder is
burdened with more than what he has paid as the price of shares hold. No
personal property will be attached for the same.
Tax benefits:
a separate entity, companies pay income tax at a flat rate. Because of this,
the company’s tax burden on higher income is less in comparison to other forms
of business organisation. Companies also avail tax exemptions deductions and
concessions for undertaking their operations in specific areas, dealing with
nature of goods and services and others.
of Joint Stock Company
the above advantages, the company form of organisation also suffers from
certain demerits. The following are some of the important demerits of a company
which every entrepreneurs should know while going for selection of type of
Difficulty in formation:
formation of a joint stock company is very difficult, time taking and expensive
as compared to any other form of organisation. Conceiving the very idea and
getting it implemented is very difficult process. Preparation of the basic
documents like memorandum of Association and Articles of Association,
fulfilling legal formalities as per the Act and getting the business registered
needs lot of time, money and expertise.
Oligarchic management:
management of company is democratic in theory but oligarchic in practice. It is
controlled by a small group of Board of Directors who hardly protect the
interest of other shareholders. They may manipulate the things with an
intention to be re-elected as directors. That is why it is said that
shareholders do nothing, know nothing and get nothing.
Delay in decision-making:
Board of Directors of the company decides about the policies and strategies of
the company. Certain decisions are taken by the shareholders. The meeting of
the directors or the shareholders cannot be held at any time as and when
required. Thus, the decision making process is usually delayed. The delay in
decision-making may result in losing some business opportunities.
Separation of ownership and management:
company is not managed by the shareholders but by the directors who are the
elected representatives of the shareholders. The directors and managers may
lack the personal initiative and motivation to manage the company efficiently
as the shareholders (owners) themselves would.
Lack of secrecy:
and every business strategy is discussed in the meeting of the Board of
Directors. The annual accounts are published and compliance to Government, Tax
authorities etc. are made at regular intervals. Therefore, it is very difficult
to maintain business secrecy in a company form of organization in comparison to
sole proprietorship and partnership.
Speculation in shares:
profit is earned by manipulating the prices of shares without actually holding
the shares, it is considered as speculation. A company provides scope for
speculation and the directors and managers may derive personal benefit out of
this. It is harmful to the innocent small shareholders who invest their hard
earned money with a view to get higher rate of return.
Fraudulent management:
possibility of starting a bogus company, collecting huge sums of money and
subsequently bringing liquidation of the company is not ruled out. The
promoters with an intention to defraud may indulge in such practices. The
directors and managers may function for their personal gain overlooking the
interest of the company.
Concentration of economic power:
company form of business gives scope for concentration of economic power in the
hands of a few through multiple directorship and creation of subsidiary
companies. Some persons are elected as directors in a number of companies.
These directors formulate policies of the company which will safeguard and
promote their own interest. Majority shares of other companies are purchased to
create subsidiary companies.
Excessive Government regulations:
company functions under too much of regulations of the Government. Reports are
to be filed and compliance are made at regular intervals to appropriate
authorities failing which penalty is imposed. A considerable time and money of
the company is involved in the process of regular compliance.
Evils of Factory system:
to large scale operation, the company may give rise to insanitation, pollution,
congestion and some social evils like migration from villages to towns,
shifting from agriculture to industry etc. They cause instances in the society.


  1. Harper,
    Douglas. “company”. Online Etymology Dictionary.
  2. Companies Act 2006, Section 1
  3. Black’s Law and lee
    Dictionary. Second Pocket Edition. Bryan A. Garner, editor. West. 2001.
  4. “Company legal definition of
  5. Companies Act 2006
  6. root.
    “Limited Liability Company
    (LLC) Definition – Investopedia”
    . Investopedia.

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