Merits of Joint Stock Companies
Some of the most important merits of Joint Stock Companies are as follows:
1. Mobilisation of huge financial resources:
The biggest advantage of company organisation is that it has the inherent ability to mobilise huge financial resources. Because of ‘number of persons’ in India and abroad who can become members in a company. Even in a private company where the maximum number of shareholder cannot exceed 50, past and present employee-shareholders are excluded while calculating the number of fifty. In any case, even the number of 50 is far more than the maximum members who can become partners in a firm.
The second factor is that in order a company can issue shares of smaller denomination, thus, suiting the convenience issue shares of smaller denomination, thus suiting the convenience of small investors also.
Besides, its shares and debentures may be issued with different features with regard to the sharing of risk, income, and control with the result that it can appeal to all sorts of investors — large, small, conservative, and speculative.
2. Limited liability:
Another advantage of company organisation is that it has the feature of limited liability. Most of the joint stock companies are formed as limited liability concerns in which shareholders are responsible for the debts of the company only to the extent of the face value of their shares in the company.
It is the factor of limited liability that has greatly contributed to the phenomenal growth of giant companies throughout the world with the resultant benefits of large scale production and distribution.
3. Ease of transfer of ownership:
It permits its member to easily transfer their shares and get out of the venture as and when they so choose. The conversion of shares into cash does not pose any difficulty because the shares of most of the public companies are listed on stock exchanges.
4. Perpetual and stable business life:
A company is perhaps the only form of ownership organisation which enjoys perpetual existence and stability. The stability of company organisation permits it to undertake projects of long duration, and also offers a great attraction to the creditors and investors to put their resources in the business.
5. Enormous possibilities of growth and expansion:
Since a company has large resources at its command — which it has either built-up from internal sources or raised from external sources — it can undertake business activities on a large scale and in diverse fields.
The business of company is conducted on a large scale; it brings the economies of scale, especially in the fields of production, marketing, and finance.
6. Efficient management:
The company organisation represents a situation in which ownership is distinct from its management. This divorce between ownership and management provides an opportunity to employ managerial personnel of exceptional abilities in business.
The expert, competent, and most modern services rendered by managers bring about efficiency and effectiveness in business operations. Professional managers are able to show better business results by adapting themselves to newer, better, unconventional, and even more risky methods of organisation and management.
7. Public confidence:
A company is under a statutory obligation to make public its activities through accounts and annual reports. Progressive and enlightened managements even voluntarily disclose to the public its activities in wider dimensions that what is required under the law. This public confidence helps a company in many ways.
8. Positive social benefits:
A company organisation brings the following social benefits also:
(i) Democratisation of ownership:
It is a particular contribution of the public company that it divides its capital into a large number of small shares that can be conveniently bought by small investors. This certainly introduces an element of socialisation of business ownership.
(ii) Source of government revenue:
A company is an important and growing source of revenue to the government insofar as it has to pay tax on every rupee of its profit. The share of big companies in government revenue far exceeds the combined tax contributions of sole proprietorships and partnerships.
Article shared by : Smriti ChandCredit: YourArticleLibrary