JOINT STOCK COMPANY
The joint -stock company is undoubtedly the most important type of business organisation today. It seeks to remedy the disabilities and the handicaps of the partnership arising out of small financial resources and limited business talent.
There are several advantages which can be claimed for this form of organisation:
(i) The company business is generally a large scale business. Therefore, it enjoys all the economies of large- scale production, internal and external, e.g., economies arising from the use of specialized lab our and machinery, economy of space, of buying and’ selling, publicity, research or experiments, etc.
(ii) Besides these, there are several advantages peculiar to the organisation itself. Shares are of small denomination, and they suit all pockets and tempera-. meets ranging from the cautious to the speculative. Hence, large capital can be raised.
(iii The fact that liability is limited and shares are transferable. induces many people to subscribe to the share capital. Thus, small and scattered amounts of capital are snowmobiled’ and turned into productive channels. Habit of thrift is strengthened.
(iv) The limitation of liability enables new risks to be taken and many new fields of business to be opened out. The actual loss, if any, is widely distributed. The limited liability principle encourages the prospective investor to invest freely. He need not be afraid of losing all he’ has. This also helps in raising large capital.
v) From the point of view of the individual investor, too, it has great advantages. Not only is his liability limited. but he is also enabled to spread out his investment. He need not place all his eggs in one basket. Further, he is not wedded to one company for good. Whenever he ~!shes to leave, he can sell his shares.
(vi) Unlike the partnership, the company is a legal person apart from the shareholders or directors. It can sue and be sued upon. It thus enjoys a perpetual existence. Further, it is on account of its ever – lasting existence that the investors can be persuaded to invest money even though for years there may be no prospect of profit.
(vii) Separation of functions has been effected weenie the capitalist and the entrepreneur. This specialization has enhanced productive efficiency, because formerly the capitalist often lacked business ability, while the entrepreneur often lacked capital. This principle, therefore, is the secret of economic progress of the nations.
(viii) The management is democratic, efficient and economical. The directors are elected by the shareholders. They are supposed to be persons with wider vision, outstanding administrative ability and business acumen. Their expert advice and guidance are available to the company at a very moderate cost.