question_answer

Explain the meaning, features, merits and demerits of joint stock company.              

Answer:

Ans.     Joint stock company is a voluntary association of persons having a separate legal        existence, perpetual succession and common seal. Its capital is divided into transferable shares.

Features:

(i) Separate legal existence: It is created by law and it is a distinct legal entity independent of its members. It can own property, enter into contracts, can file suits in its own name.

(ii) Perpetual existence: Death, insolvency and insanity or change of members has no effect on the life of a company. It can come to an end only through the prescribed legal procedure.

(iii) Limited Liability: The liability of every member is limited to the nominal value of the shares bought by him or to the amount guaranteed by him.

(iv) Transferability of shares: Shares of public company are easily transferable. But there are certain restrictions on transfer of share of private company.

(v) Common seal: It is the official signature of the company and it is affixed on all important documents of company.

(vi) Separation of ownership and control: Management of company is in the hands of elected representatives of shareholders known individually as director and collectively as board of directors.

Merits:

(i) Limited liability: Limited liability of shareholders reduces the degree of risk borne by him.

(ii) Transfer of Interest: Easy transferability of shares increases the attractiveness of shares for investment.

(iii) Perpetual existence: Existence of a company is not affected by the death, insanity, insolvency of member or change of membership. Company can be liquidated only as per the provisions of companies Act.

(iv) Scope for expansion: A company can collect huge amount of capital from unlimited number of members who are ready to invest because of limited liability, easy transferability and chances of high return.

(v) Professional management: A company can afford to employ highly qualified experts in different areas of business management.

Limitations:

(i) Legal formalities: The procedure of formation of company is very long, time consuming, expensive and requires a lot of legal formalities to be fulfilled.

(ii) Lack of secrecy: It is very difficult to maintain secrecy in case of public company, as company is required to publish and file its annual accounts and reports.

(iii) Lack of motivation: Divorce between ownership and control and absence of a direct link between efforts and reward lead to lack of personal interest and incentive.

(iv) Delay in decision-making: Red tapism and bureaucracy do not permit quick decisions and prompt actions. There is a little scope for personal initiative.

(v) Oligarchic management: A company is said to be democratically managed but actually managed by a few people, i.e. Board of Directors. Sometimes they take decisions keeping in mind their personal interests and benefit, ignoring the interests of shareholders and company.