A large sized business organization established by issuing shares is called joint stock company. It has several benefits or advantages such as large capital resource, limited liability, division of risk, democratic management etc.
A joint stock company can collect large capital resources. Its capital is divided into shares of small value. A large number of shareholders are attracted by its shares. There is no limit to number of shareholders of public limited company. A company can issue debentures and bonds to raise loan capital. It has high credit standing to borrow from banks. This facilitates business activities on large scale. So, access to large capital is the main advantage of joint stock company.
The liability of shareholders of a company is limited to the face value of shares held. They are personally liable for the debts of the company. This attracts people to incest in the joint stock company.
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Division of risk is another advantage of joint stock company. Risks means the chance of losing money. The risk in a company is divided among many shareholders. It is limited to the face value of share. The ownership is dispersed. This encourages people to invest in shares of company.
A joint stock company has continued existence. Shareholders may come and go but the company continues. The change of management and shareholders does not affect the life of the company.
5. Transferable shares
The shares of joint stock company are easily transferable. They can be easily bought and sold in the stock exchange. This provides liquidity to the shares of a company. Shares can be converted into cash as and when needed.
A joint stock company is democratically managed by a board of directors. The shareholders elect the directors in a democratic way. Shareholders can change the directors through majority vote in Annual General Meeting.
A company is owned by shareholders but it is managed by professional managers. Such managers are accountable to the board of directors. A company can attract talented and competent persons as managers.
8. Large scale operation
Large capital resources allow companies to carry on large scale operations. Large scale operation help to supply quality goods at low cost. Economies of scale can be reaped. A company has high scope for growth and expansion.
A company enjoys high public confidence. It is required to publish its audited financial statements. It keeps the public informed. It is accountable not only to owners but to public and government. This helps to gain goodwill and reputation among public.
A joint stock company has social importance. It assumes social responsibility. It creates employment opportunities. It provides quality goods and services at low cost. It pays taxes to government. It mobilizes savings for productive purposes. It stimulates small savers to invest in shares. it carries out welfare programs for the community.
Some of the notable advantages of joint stock company are as follows:
1. Large capital
A joint stock company can collect large capital resources. Its capital is divided into shares of small value. A large number of shareholders are attracted by its shares. There is no limit to number of shareholders of public limited company. A company can issue debentures and bonds to raise loan capital. It has high credit standing to borrow from banks. This facilitates business activities on large scale. So, access to large capital is the main advantage of joint stock company.
2. Limited liability
The liability of shareholders of a company is limited to the face value of shares held. They are personally liable for the debts of the company. This attracts people to incest in the joint stock company.
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3. Divided risk
Division of risk is another advantage of joint stock company. Risks means the chance of losing money. The risk in a company is divided among many shareholders. It is limited to the face value of share. The ownership is dispersed. This encourages people to invest in shares of company.
4. Continued existence
A joint stock company has continued existence. Shareholders may come and go but the company continues. The change of management and shareholders does not affect the life of the company.
5. Transferable shares
The shares of joint stock company are easily transferable. They can be easily bought and sold in the stock exchange. This provides liquidity to the shares of a company. Shares can be converted into cash as and when needed.
6. Democratic management
A joint stock company is democratically managed by a board of directors. The shareholders elect the directors in a democratic way. Shareholders can change the directors through majority vote in Annual General Meeting.
7. Professional management
A company is owned by shareholders but it is managed by professional managers. Such managers are accountable to the board of directors. A company can attract talented and competent persons as managers.
8. Large scale operation
Large capital resources allow companies to carry on large scale operations. Large scale operation help to supply quality goods at low cost. Economies of scale can be reaped. A company has high scope for growth and expansion.
9. Public confidence
A company enjoys high public confidence. It is required to publish its audited financial statements. It keeps the public informed. It is accountable not only to owners but to public and government. This helps to gain goodwill and reputation among public.
10. Social importance
A joint stock company has social importance. It assumes social responsibility. It creates employment opportunities. It provides quality goods and services at low cost. It pays taxes to government. It mobilizes savings for productive purposes. It stimulates small savers to invest in shares. it carries out welfare programs for the community.
