Note on Joint Stock Company

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JOINT STOCK COMPANY

The joint stock company is an association of persons having a separate legal existence, perpetual succession, common seal, common capital etc. The joint stock company divides its capital into a large number of parts with each value where each part of capital is called share. The person who holds the share is called shareholders of the company.

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source:www.slideshare.net

The company is managed by the board of directors who is the representatives of shareholders. The member of the board is elected by the shareholders.

According to L.H. Haney, " A joint stock company is a voluntary association of individuals for profit having a capital divided into transferable shares, the ownership of which is the condition of membership. Again a company is an artificial person created by law having a separate entity with a perpetual succession and a common seal."

Therefore, a joint stock company is a corporate organization having a separate legal existence, perpetual succession, common seal, common capital etc. managed by the representatives.

MERITS OF JOINT STOCK COMPANY

  1. Huge capital: Joint stock company has an association of various persons. It has merits of huge capital because different member invests huge capital. When there is a lack of capital in a joint stock company it can issue the shares to the public. Hence, huge capital can be collected when shares are issued.

  2. Perpetual existence: A Joint stock company has separate legal existence. 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. Even if there are any changes in management, the board of directors or some member may come or go, the function of the company is not affected.

  3. Limited Liability: 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. Shareholders are liable upto the invested amount. Due to the provision at limited liability potential investors are attracted towards a joint stock company.

  4. Transfer of shares: Joint Stock Company has the provision of free transfer of shares. No one is compelled to join and leave the company. Permission or mutual consent is not needed to transfer the shares of a joint stock company.

  5. Democratic management: 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. Competent members are elected from election to manage the company. Thus, democratic management can be seen in a joint stock company.

  6. Public faith: 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.

  7. 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 large-scale operation.

  8. Social importance: 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.

DEMERITS OF JOINT STOCK COMPANY

  1. 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. It is rigidly observed by rules, regulations or laws of government because it collects capital from the general public.

  2. Lack of secrecy: Joint Stock Company has an obligation to disclose the accounts to insider as well as an outsider. 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.

  3. 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 to grab the opportunities of an external environment.

  4. 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 because they know about the fluctuation of price.

  5. 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.

  6. Conflict of interest: Different parties are involved in a joint stock company. There are mainly 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.

  7. Neglect of the minority: Joint stock company gives priority to majority shareholders. Minority shareholders are neglected in Annual General Meeting and election. Only majority shareholders are given priority to take the decision of the joint stock company. Minority shareholders are boycotted to run productive business activities.

  8. Groupism: Unhealthy groupism can be seen in the joint stock company in the period of election. Constructive groupism is fruitful but destructive groupism is harmful to the company. Unhealthy groupism leads to failure of the company. So, a joint stock company should be able to minimize unhealthy groupism.

(Karna, Khanal, and Chaulagain)(Khanal, Khatiwada, and Thapa)(Jha, Bhusal, and Bista)

Bibliography

Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.

Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.

Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.

  1. The joint stock company is an association of persons having a separate legal existence, perpetual succession, common seal, common capital etc. 
  2. The person who holds the share is called shareholders of the company.

Merits of Joint Stock Company

  1. Huge capital
  2. Perpetual existence
  3. Limited Liability
  4. Transfer of shares
  5. Democratic management
  6. Public faith
  7. Large scale operation
  8. Social importance 

Demerits of Joint Stock Company

  1. Difficult legal formalities
  2. Lack of secrecy
  3. Delay in decision making
  4. Speculation of share
  5. Management of oligarchy
  6. Conflict of interest
  7. Neglect of the minority
  8. Groupism 

 

 

 

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