Wednesday, 4 October 2017

Merits of a Joint Stock Company - Class 11 | Class 12

Joint Stock Company is one of the various forms of business organizations.

Merits of Joint Stock Company
Merits of Joint Stock Company

Advantages of Joint Stock Company are as follows-

Large Capital - Public Limited Company can raise a huge amount of capital as there is no upper limit on the number of owners (shareholders) that a public limited company can have. You don't need a huge capital to invest in a public limited company. Owners can invest even a small amount of capital. Public Limited Companies have a large number of shareholders. So even if every shareholder invests a small amount of money still the company can create a large capital base.

Growth Opportunities - As the company has a large capital base growth opportunities are also enormous, especially in case of a public limited company. Even after the company has commenced the business, if a public limited company requires more capital, it can always issue more shares.

Democratic Management - Public Limited Companies have a large number of shareholders. The company is run by the Board of Directors. And the Board of Directors is appointed by the shareholders. The Board of Directors is answerable to the shareholders. Thus the business is run by the Board of Directors who are appointed by the owners/shareholders themselves.

Limited Liability - The owners of Joint Stock Company have limited liability. In case the company becomes insolvent/bankrupt and is unable to pay off business liabilities out of business assets, the personal assets of the owners/shareholders cannot be used to repay the liabilities of the company.

Professional Management - Since Public limited companies have access to large financial resources, it is possible for a public limited company to appoint professionals who are experts in different areas. The directors are generally well educated and are experts in different areas of management. Thus the business is managed professionally. Availability of experts of different areas results in better decision making and increased efficiency in the operation of business activities

Perpetual Existence - Joint Stock Company has a separate legal identity from its owners. It has a separate legal status, which means in the eyes of the law the joint stock company is different from its owners. Death, Insolvency or Insanity of any of the owners doesn't result in the closure of the company.

Transferability of Shares - Shares of a public limited company are listed on the stock exchange and are easily transferable. A shareholder who wants to sell his/her share can do so through a stock exchange

Economies of Large-Scale Operations - Since public limited companies have large-scale operations, they enjoy economies of the scale (Low cost due to the high volume of business). They have a better bargaining power than other form of business organizations.

Read further - Demerits of Joint Stock Company

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