Advantages of a Joint Stock Company
Advantages of a Joint stock company
A joint stock company has many advantages. These are given below:
1. Large capital: A company can secure large capital compared to a sole trader or partnership. Large amount of capital is necessary for conducting business on a large scale. For e.g. Reliance has invested more than Rs.25,000 crore in its telecom venture. Raising such huge amount of funds would be next to impossible in a sole-tradership or partnership.
2. Limited liability: The liability of a shareholder is limited. The risk of loss is limited to the unpaid amount on the face value of shares held. In the case of a company limited by shares, the liability of a shareholder is restricted to the unpaid amount on the shares held by him. In the case of a company limited by guarantee, his liability is restricted to the amount that he has guaranteed to contribute in the event of winding up of the company.
3. Transferability of shares: Transaction of Shares between two individuals are easy. So there is liquidity of investment. Any shareholder can easily convert his shares into money by selling his shares.
4. Perpetual succession: A company has perpetual or continuous existence. Members may go or new members may come in, but the company continues to exist. This ensures continuity in operations and the company can undertake long term investments.
5. Promotion of saving and investment habit: Joint stock company system encourages people to save. Even small amount can be used for the purchase of shares. A person can buy even one share of a company.
6. Risk bearing capacity: The loss of the company is distributed over a large number of shareholder. So each shareholder bears a very little amount of loss. Hence the company form of organization has risk bearing capacity.
7. Economies of large-scale operation: A joint stock company can undertake business on large scale. As a result it can derive all the advantages of large scale production. For e.g. Hero Honda Ltd., the world’s largest seller of two-wheelers, manufactures motorbikes on a large scale and is able to enjoy cost efficiency.
8. Economic development: Joint stock company system has been responsible for the rapid growth of industries and trade in many countries. Since Joint Stock Companies have large financial resources, they are able to undertake large scale production, satisfy needs of more number of consumers, create large scale employment opportunities, promote balanced regional development and contribute substantially to the government by way of taxes.
9. Public confidence: The operation and financial position of joint stock companies are known to the public. Their accounts are audited by Chartered Accountants who certify that the accounts are free from errors and frauds. This promotes confidence in the minds of the public.
10. Social benefit: They have been:
- Able to supply goods of better quality at low prices,
- Innovating new products,
- Providing employment to millions of persons,
- Setting up industries in backward areas and promoted their development,
- Exporting goods to other countries and earn valuable foreign exchange,
- Promoting import substitution and conserved valuable foreign exchange,
- Aiding government relief efforts at the time of war, natural calamities by contributing men, money and material,
- Contributing to government funds by way of taxes.
