Demerits

But there is the other side too.

(i) The management is democratic only in theory: it is actually oligarchical. The directors are practically self – appointed, and they remain there as long as they choose. For practical purposes, the share – holders have little voice.

(ii) Some of the directors may be unscrupulous and exploit the unwary investor. They may use inside knowledge for their own benefit. For instance, they may falsely give out that the company is going to fail and hen tile value of shares goes down, they themselves purchase them.

(iii) Fraudulent publicity deceives the public, Rosy pictures given in the prospectus are sometimes misleading.

(iv) The directors are often lawyers or doctors and have no business experience or knowledge. Their only qualification is the share qualification. Such directors may not prove competent.

(v) Business is  personalized. The owners of business, i.e., the shareholders. are concerned only with profit. The welfare of the employees is utterly neglected. The paid managers express their helplessness. This loss of human touch is a great loss. The business becomes purely a mercenary affair.

(vi) The liability being limited and the shares being transferable, the shareholders take no interest in the company. Few of them attend the shareholders’ meetings. Their apathy throws all the powers in the hands of a few directors. Thus, the company loses its democratic character.

(Vii) Sometimes the directors launch rash enterprises, because it is easy to play ducks and drakes with other people’s money.

(viii) The organisation is too ponderous and unwieldy. It cannot take quick decisions. It is only suited to a business which can be reduced to set rules, which are both fool – proof and knave – proof. This form of organisation is not fit for pioneering work, or where changing conditions require constant changes in policy of production, or where customers are won with difficulty and lost at the slightest pretext.