What Are The Advantages And Disadvantages Of Joint Stock Company?

The advantages:-
 
Large financial resources:
A joint stock company is able to collect a large amount of capital through contributions from a large number of people. In a public limited company, shares can be offered to the general public to raise capital. The companies can also accept deposits from the public and issue debentures to raise funds.
 
Limited liability:
In case of a joint stock company, the liability of it's members is limited to the value of shares held by them. Private property of members cannot be confiscated for overcoming the debts of the company. This advantage attracts many people to invest their savings in the company and it encourages the company to take more risks.
 
Professional management:
Management of a company is in the hands of the directors, who are elected democratically by the members or shareholders. These directors are known as the "Board of Directors". They manage the affairs of the company and are accountable to all the investors. So, the investors elect capable persons who have sound financial, legal and business knowledge to the board so that they can manage the company efficiently.
 
Large-scale production:
Since there is an availability of large financial resources and technical expertise, it is possible for the companies to have "large-scale" production. This enables the company to produce more efficiently and at a lower cost.
 
Research and development:
Only in joint stock company form of business, it is possible to invest a lot of money on research and development so that new design, better quality products, etc. Can be achieved.
 
The disadvantages;-
 
Difficult to form:
The formation & registration of joint stock company involves a long and complicated procedure. A number of legal documents and formalities have to be completed before a company can start business. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. Because of all this, the cost of formation of a company is very high.
 
Excessive government control:
Joint stock companies are regulated by government through the Companies Act and other economic legislations. Especially, public limited companies are required to complete various legal formalities as provided in the Companies Act and other legislations. Non-compliance with these causes a heavy penalty. This affects the smooth functioning of the companies.
 
Delay in policy decisions:
Generally policy decisions are taken at the “Board of Directors” meetings of the company. Further, the company has to fulfill certain procedural formalities. These procedures are time consuming and therefore, may delay action on the decisions.
 

A company which is formed and registered under the companies ordinance 1948 of Pakistan is know as a registered company. The companies' ordinance provides registration of the following two types of companies.
• Company limited by shares
• Company limited by guarantee.
A joint stock company is a voluntary association formed by people to carry on a certain business for profit. People contribute their capital in forms of the shares in the company. Company works in its own name under a common seal. It has separate entity from its members.

The analysis of the various definitions of a company brings out the following features.
A company is a voluntary association of persons joining hands with a common motive. For the formation of the private company , there must be at least two & maximum fifty members limited, while in public company , minimum are seven members and maximum are no restriction. A company is called an artificial person. It is a person crested by law. The company being an article person has many of the rights of natural person.

This is most important characteristic of the company that the liability of each shareholder of the company is limited up to the value of the share purchased by him. The ownership and the management of the company are two separate bodies. The shares of the company have full right to transfer their shares to any one without consulting other shareholders. A company has a long life compared to other forms of the business organizations. If any of the shareholder migrates, dies, become insolvent or lunatic, it will not affect the continuity of the life of the company. The company can, however, be wound up through compliance with the provision of companies ordinance of Pakistan, 1984.

A joint stock company is in a position to raise capital, because a number of financing instruments are available to the company like share, debentures, bounds and retained earnings etc. Similarly there is no restriction for the maximum number of owners in a public limited company. Total capital of the company is divided into parts of small value called shares and this attracts the man whit limited resources to invest.

The life of the joint stock company compared to the sole proprietorship and partnership is very stable. If the business remains well managed, it can live on indefinitely. The life of the company is not affected by the death, disability, insolvency or disagreement of a shareholder. The shareholders may come or go the life of the company like a artificial person is least effected by these changes. The liability of the shareholders is limited to the nominal value of the shares held by them, it means if a company fails to pay its obligations, the personal properties of the shareholders cannot be sold for the settlement of business debts. Business obligation must be paid out of business assets. This factor attracts the investors to invest in ht e business.