Sarthaks Test
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Explain the merits of joint stock company

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(1) Huge Financial Resources : A company can collect large sum of money from large number of shareholders. There is no limit on the number of shareholders in a public company. Since its capital is divided into shares of small value even a person of small means can contribute to its capital by simply purchasing its shares. It facilities the mobilization of savings of millions for the productive purposes. In addition, a company can borrow from banks to a large extent and also issue debentures to public.

(2) Limited Liability : The liability of shareholders in a company is limited to the face value of the shares they have purchased. The limited liability encourages many people to invest in shares of joint stock companies. If the funds of a company are insufficient to satisfy the claims of the creditors, no members can be called to pay anything more than the value of shares held by them.

(3) Perpetual Existence : Due to its separate legal existence, it has perpetual existence. The life of company is not dependent die or become insolvent. The members of a company may go on a company. The stability of business is of great importance to the society as well as to the nation.

(4) Transferability of Shares : The shares if a public company are freely transferable. This transferability of shares brings about liquidity of investment. It encourages many people to invest. It also helps a company in tapping more resources.

(5) Diffusion of Risk : In sole proprietorship and in partnership business, the risk is shared by few persons. But in company, the number of shareholders is large, so many persons share risk. Therefore, the burden of risk upon any individual is not huge. This attracts many investors. It enables companies to take up new ventures.

(6) Efficient Management : In company ownership is separate from management.

A company has enough resources to utilize the services of experts and managers who may be highly specialized in different fields of management. It can attract talented persons by offering them higher salaries and better careeropportunities. The efficient management will help the company to take balanced decisions and can direct the affairs of the company in the best possible manner. It also helps to expand and diversify the activities of the company.

(7) Economies of Large Scale Production : Large scale production of modern days is the result of company form of organization. This results in economics in production, purchase, marketing and management. These economies will help company to provide quality goods at lower cost to the consumers.

(8) Democratic Management : The company is managed by the elected representatives of shareholders called the ‘directors’. Directors are responsible and accountable to the general body of shareholders. Decisions are taken by a majority of votes completely based upon democratic principles. This prevents in mismanagement of a company.

(9) Public Confidence : A company enjoys a greater public confidence and reputation in the market due to legal control, publicity of accounts and perpetual existence. Audit of Joint Stock Company is compulsory. A company’s financial accounts and statements are published , circulated and are open to public inspection. Therefore public have enough faith in it. So, it can get loan from different financial institutions.

(10) Social Importance : The company provides opportunity to mobilize scattered savings of the community. It also creates employment opportunities. Due to large-scale production consumers get cheaper goods. The society is supplied with enough quantity of goods. Government gets income in the form of taxes.

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