Advantages and Disadvantages of Joint Stock Company – Explained!

As it is a legal entity distinctly separate from the owners and managers, it can, like any other legal entities, own assets, incur liabilities and engage in activities. In a joint stock company, ownership is represented by shares, which may either be a general equity or a preferential equity. General equity shares confer ownership rights to the share holders.

Such shareholders get dividend, as declared by the company. They can vote to elect the board of directors and the auditors of the company and can also participate in the general meetings of the company. Preference shares are capital stocks, which provide specific dividend before the dividend is paid to common or equity shareholders. Such dividend is payable at a predetermined rate irrespective of the company’s profit or loss.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

However, such shareholders do not enjoy any voting rights like the common or equity shareholders. Also preference shareholders enjoy the privilege of getting their obligations first met, in the event the company goes bankrupt. Usually, there are four different types of preference shares, i.e., cumulative preferred, non-cumulative preferred, participating and convertible.

Advantages of Joint Stock Corporation:

1. Ownership of a joint stock company is transferable

2. People who own the shares of the company can dispose their stake and in the process those who acquire such shares become the owners

3. With the demise of the present equity holders, their legal heirs become the owners, as shares may be transferred in their names. Such characteristic features, i.e., easy transfer of ownership, separate legal entity and limited liability of a joint stock company, together create the organizational structure, which can combine several activities and functions in a well-coordinated framework

4. It can raise adequate capital, both by issuing equity shares and taking long-term loans from financial institutions

5. Shareholders in a joint stock company need not be involved in the management of the organization

Disadvantages of Joint Stock Corporation:

1. Formation of a joint stock company is quite complicated.

2. Due to its separate legal entity, it requires incorporation, complying with all required statutory provisions. In India, such incorporation formalities and other statutory compliance for the formation of joint stock company is regulated by the Companies Act, 1956. Some companies may prefer to operate in closely held conditions and, therefore, prefer to form a private limited entity, restricting the number of members to a minimum of two and a maximum of fifty. They are known as private limited companies.

Some, however, prefer to form public limited company, with a minimum seven and maximum any number of members. In such cases, they become widely held organization, with shareholders even worldwide.

3. All such organizations are governed by a duly appointed board of directors.

Apart from the classification of joint stock companies into private or public limited, we can also have companies with government stake. To take an example, a wholly government-owned organization is known as departmental undertaking.

An erstwhile private or public limited company taken over by the government (a case of nationalization) is known as government undertaking, whereas, a new company formed jointly by the government and private promoters is known as government enterprise.

These apart, we have joint Hindu family organization, governed by the Hindu Law, multinational and transnational organizations. Joint Hindu family organizations are inherited and headed by the Karta. Multinational or transnational companies expand their business even beyond their own country where they are incorporated.

x

Hi!
I'm Ian!

Would you like to get a custom essay? How about receiving a customized one?

Check it out