Khanal, Soma Raj, Surendra Thapa Aslami and Sitaram Dhakal.Business Studies.Kathmandu: Taleju Prakashan, 2067.
Pant, Prem R., et al.Business Studies.Kathmandu: Buddha Academic Publishers and Distributors Pvt. Ltd., 2010.
The characteristics of joint stock company are:
An artificial person:
A joint stock company is an artificial person which is created by the law. It has no physical shape as a natural person but has almost all the rights of a natural person. It can enter into contact, sell, hold and buy the properties.
A joint stock company is established by the law and the law brings it to an end. It is a corporate body. So, many shareholders may transfer their share and the new person may come place in their place but is does not affect the existence of the company.
The limited liability is another important feature of the company. The liability of the shareholder is limited to the extent of the value of shares held or the amount guaranteed by them. If the company is unable to pay the creditors then the shareholder won't pay anything more than what is to be paid to the company.
A joint stock company is an artificial person. So, it cannot sign any contract in its name. Any document bearing the common seal of the company, a signed by two directors, legally binds the company.
A joint stock company is a democratic organisation. The important decisions are taken by following the principles of democracy in the annual general meeting and the board director meeting.
Transferability of shares:
The shares of the joint stock company can be transferable from one person to another without prior permission of the company management. This transfer of shares changes the ownership but does not affect the regular functioning of the company.
Capital is divided into shares:
A joint stock company divides its capital into a large number of parts with each value where each part of capital is called share. These shares are purchased by the general public as well as the promoters to be the shareholders of the company.
Publication of financial statements:
Financial statement of the companies have to be published on a regular basis for public information. A joint stock company should publish the audited financial statements yearly in a renowned national newspaper. These statement helps to provide information to general public and other stakeholders.
Separate legal entity:A joint stock company is an artificial company so it has its own separate legal entity from its members. It can own assets, property, enter into contacts, sue or can be sued by anyone in the court by the law. Its shareholders cannot be held liable for any conduct of the company.
The advantages of joint stock company are:
A company has the ability to collect huge financial resources. It has merits of huge capital because different member invests huge capital. When there is a lack of capital in a joint stock company. Business activities that require more capital are best organized in the form of a country.
Limited liability is the significance of joint stock company. The shareholders should not pay the excess debt of the company by selling their private/personal property. This facility attracts the general people for investment in the company.
It is another important advantage of the joint stock company. The life of a joint stock company is not affected by death, lunacy, and insolvency of the members. Therefore, a joint stock company has a long term life, which is beneficial, both to the company and its shareholders.
Transferability of shares:
Shareholders have the right to sell the shares of a joint stock company to those who are interested to buy. No one is compelled to join and leave the company. Transferability of shares encourages the people to purchase and sales shares through stock exchanges.
Joint stock company has democratic management. It is managed by the majority of shareholders who elect the board of directors. They are responsible for managing the activities of a joint stock company.
People have faith in a joint stock company. It has an obligation to disclose the financial documents to annual General Meeting. The banks and the financial institutions believe in a joint stock company because of the accounts disclosed.
Large scale operation:
Joint stock company has an association of different managerial skill because different members are associated with it. Due to the sufficient capital and competency of the members (directors)Joint-stock company has the possibility of large scale operation. Hence, a joint stock company has a large-scale operation.
Joint stock company is also a social creature. So, it invests amount for the betterment of society. It invests its capital in various sectors such as health, education, sports and so on. Hence, a joint stock company has a responsibility to society.
The disadvantages of joint stock company are:
Difficult legal formalities:
Joint stock company has demerits of difficult legal formalities. It is difficult to establish and run. It has to follow difficult legal formalities in comparison to sole trading and partnership firm. The legal formality also cost some amount of money.
Lack of secrecy:
A company must provide each shareholder with an annual report. The planned policies and strategies of the joint stock company are transparent because they are discussed in Annual General Meeting. The company has to publish its statements of financial affairs every year. So, it has demerits of lack of secrecy.
Delay in decision making:
Sometimes business organization has to take the quick decision but the quick decision is not possible in a joint stock company. The major decision of the company must be passed from Annual General Meeting. so, long time is required to pass the decision. Thus, business delays grabbing the opportunities of an external environment.
Speculation of share:
There is the possibility of speculation of share in a joint stock company. Some shareholders have inside approach with directors. Those shareholders can take undue advantage when they misuse the inside approach with directors.
Management of oligarchy:
Management oligarchy means the rule of the minority. The shareholders elect few directors in annual general meeting. Those few directors rule/control over the activities of a large number of shareholders. This is known as of oligarchy.
Lack of interest:
There are main shareholders, creditors/bankers, and employees. Different parties have different interest. If the interest of one party is addressed, it negatively impacts the interest of others. Therefore, a joint stock company has demerits of conflict of interest.
Groupism: Unhealthy groupism can is seen in the joint stock company in the period of election. Constructivegroupismis fruitful but destructive groupism is harmful to the company. Unhealthygroupismleads to the failure of the company. So, a joint stock company should be able to minimize unhealthy groupism.
The merits of joint stock company are:
transferability of shares
Large scale operation
The demerits of joint stock company are:
Difficult legal formalities
Lack of secrecy
Delay in decision-making
Speculation of share
Management of oligarchy
Conflict of interest
Neglect of minority