Advantages Of Joint Stock Company – The birth and development of the joint stock company was the result of an attempt to overcome the drawbacks or shortcoming of sole proprietorship or partnership. The following are the main advantages of a joint stock company:
Advantages Of Joint Stock Company
(1) Adequate Resources of Capital: Amongst all forms of business associations, a joint stock company has the maximum resources of capital. In fact, there is no limit on the generation of capital for a company. No matter where the company is incorporated or has its registered office, capital can come from every corner of the country. If the number of shares is substantial-which it is in a joint stock company-a massive amount of capital can be generated.
Since the individual shares are not highly priced, ordinary persons who are economically not very well-placed can also afford to invest in shares if they believe that the company’s promoters are efficient businessmen and it is likely to do well. As a result, the company’s activities are not hindered because of lack of capital.
(2) Limited Liability: One of the main advantages of a joint stock company is that its liability is imited. The liability of the shareholders is limited to the face value’ of the shares held by them, and their personal assets cannot be used to pay the company’s debts in case of its winding up. The limited liability of the shareholders (limited to the value of their investment in shares) is a big ‘attraction’ for them to buy shares. In today’s world with its increasing risk in business, limited liability accompanied by a reasonable prospect of making profit is what the investors are looking for.
(3) Perpetual Existence: The existence of a company being perpetual, it is not affected by the death, insolvency, etc., of its directors or members. Shareholders and directors come and go, but it makes no difference to the existence of the company. In contrast to it, a partnershipis totally dependent on the partners and terminates with the death, insolvency or lunacy of any partner, unless there is an agreement among the partners to the contrary. A company, because of its perpetual existence, can enter into long-terms contracts.
(4) Transferability of Shares: The shares of a joint stock company can be freely transferred These shares are bought and sold in the stock exchanges, and there is no restriction on their sal le or purchase. In this way, the shareholders can transfer their right of ownership of shares. In a partnership on the other hand, a partner cannot transfer his share in the partnership without the consent of other partners.
(5) Diffusion of Risk: Besides the liability of the shareholders being limited in a joint stock company, there is no restriction on the number of shareholders. For this reason, a large number of persons can become its members and contribute to the development of the company’s business. The risk factor is diffused because risk is shared by a large number of persons. As a result, the company can even enter fields of activity where risk is involved. This is particularly important for a developing country like India where industry and commerce need to be developed despite there being a relatively higher risk in such development.
(6) Incentive to Large-Scale Production: Since it is easier for a joint stock company to generate capital, large industries can be set up and production can be undertaken on a large-scale. If there were no such companies, we would not have big multi-crore industries that we have today. Not only that-there are many advantages that the country enjoys because of mass production. For one, the cost of production is low and it provides employment to many who participate in the production process. The goods produced are cheap and affordable by the common man. The government gains in revenue in a big way in the form of taxes and duties, and the standard of living of the society at large becomes better.
(7) Public Confidence: This is the seventh Advantages Of Joint Stock Company. This form of commercial associations has come to enjoy the confidence of the public, which is the reason why it is successfully functioning across the globe. Ajoint stock company publishes its financial statements and an account of its activities annually which can be examined by anybody. Its books of accounts are audited by independent auditors, which is mandatory by law and goes a long way in creating public confidence. In this way, by its business policy and conduct, a joint stock company is assured of public confidence.
(8) Appointment of Able and Experienced Staff: This is the 8th Advantages Of Joint Stock Company. A company has enormous resources at its command and, as such, it can appoint able and experienced experts to manage its affairs even at high salaries. This may normally be difficult for other organisations because of limited resources.
(9) Stimulus to Small Saving: A company is like a river-it is flowing and perpetual and there is little likelihood of its coming to an end. Because the shares of a company are low-priced, and are payable in a number of calls, it serves as a stimulus to persons with limited means to invest in its shares. The common man is encouraged to save and invest his savings in shares.
(10) Development of Management Profession: A company is managed not by its shareholder but by professional managers who are efficient and perfectionists. The development of companies and that of professional management go hand in hand-each boosts the other in development. Management as a profession has an important place in today’s scenario, and has become a part of modern education.
(11) Avenues for Investment by Financial Institutions: This is 11th Advantages Of Joint Stock Company. In today’s world, there has been a phenomenal development of financial institutions like banking, insurance and financial corporations. The basis of such development are the companies. The massive investments required by such institutions are made by big business houses (which are companies). Shares and debentures are the medium whereby companies manage to generate the investments on such a massive scale.
(12) Stimulus to Industrial Research: Because of vast resources at its command, a joint stock company can afford to have a Research Department which helps in developing new and innovative methods of production that help reduce production cost and upgrade production standards. In a age where the norm is ‘survival of the fittest’, only those organisations who keep up with times-or go a step ahead-take the cake. And that is exactly what a joint stock company is equipped to do.
(13) Growth and Expansion: The resources at the command of a company are immense and, as such, there are tremendous possibilities for its growth and expansion, which is not possible in other commercial associations.