JOINT STOCK COMPANIES

Advantages of Companies

1. More Capital: Joint stock companies are in a better position to mobilize large amounts of capital than sole proprietorships and partnerships due to the large number of shareholders who constitute them. This is because companies can issue shares to the public, which allows them to raise large sums of money from a wide range of investors.
2. Limited Liability: The liability of the members of a company is limited, which means that their personal assets are not at risk if the company incurs debts or losses. This is a major advantage of companies over sole proprietorships and partnerships, where the owners are personally liable for the debts and losses of the business.
3. Continuity: A company is a legal entity that continues to exist even if one or more of its members dies, becomes bankrupt, or withdraws from the company. This is known as the principle of perpetual succession.
4. High Profits: Joint stock companies have the potential to generate high profits due to their large scale of operations and economies of scale. They can also benefit from specialization and division of labor, which can lead to increased efficiency and productivity.
5. Shares are Freely Transferable: Shareholders of a public limited company can easily sell their shares on the stock exchange market without the consent of other shareholders. This makes it easy for investors to enter and exit the company, which can increase liquidity and attract more investors.
6. Strong Financial Position: Companies have a strong financial position because their capital cannot be withdrawn. This means that they can more easily secure loans from banks and other financial institutions.
7. Efficient Management: Joint stock companies can employ specialists in different departments, such as managers, accountants, and sales managers. This can lead to more efficient and effective management of the business.
8. Different Types of Shares: Companies can issue different types of shares to suit the investment habits of different types of people. This can make it easier for companies to attract a wide range of investors.
9. Encourage Savings: People can invest their savings profitably by buying shares in a joint stock company and receiving dividends (profits). This can encourage people to save and invest their money, which can benefit the economy as a whole.
10. Security: Public limited companies are required to publish their financial statements to the general public. This can help to protect investors from fraud and other financial irregularities.
11. Free Transferability of Shares: Shareholders can easily sell their shares to other investors, which makes it easy for them to exit the company if they wish.
12. Large Financial Resources: Companies can raise large amounts of capital from a wide range of investors, which gives them access to significant financial resources.
13. Economies of Scale: Companies can achieve economies of scale by producing goods and services on a large scale. This can lead to lower costs and higher profits.
14. Public Confidence: Public limited companies are required to publish their financial statements and other information, which can help to build public confidence in the company.
15. Tax Benefits: Companies may be eligible for certain tax benefits, such as lower tax rates or investment tax credits.
16. Diffused Risks: The risk of loss is spread among a large number of shareholders, which can make it less risky for individual investors.

Disadvantages of Companies:

1. Delays in Decision Making: Decision-making in companies can be slow and bureaucratic, as it often requires the approval of multiple stakeholders, such as the board of directors and the shareholders.
2. Oligarchies in Management: In some companies, a small group of powerful individuals may have too much control over the decision-making process, which can lead to a lack of accountability and transparency.
3. Lack of Secrecy: Public limited companies are required to disclose a significant amount of information to the public, which can reduce the company’s ability to keep its business strategies and financial information confidential.
4. Difficulty and Costly Formation: Forming a company can be a complex and expensive process, as it requires the preparation of various legal documents and the payment of government fees.
5. Lack of Motivation and Personal Attention: In large companies, individual employees may feel less motivated and less connected to the business, which can lead to lower productivity and innovation.
6. The Management of Public Companies Lies in the Hands of Hired Professionals: This can lead to a lack of accountability and responsiveness to the needs of shareholders and other stakeholders.
7. Excessive Regulations: Companies are subject to a significant amount of government regulation, which can increase the cost of doing business and reduce the company’s flexibility.
8. Social Evils: Some companies may engage in unethical or illegal activities, such as pollution, labor exploitation, or tax evasion. This can damage the company’s reputation and lead to legal and financial penalties.
9. Conflict of Interest: Directors and managers of companies may have personal interests that conflict with the interests of the company, leading to decisions that benefit them at the expense of the company’s shareholders or stakeholders.