Ownership of stock confers a large number of privileges. The
company is managed on behalf of the shareholders by a Board of Directors,
elected at an Annual General Meeting. The shareholders also vote to accept or
reject an Annual Report and audited set of accounts. Individual shareholders
can sometimes stand for directorships within the company, should a vacancy
occur, but this is uncommon.
The shareholders are usually liable for any of the company
debts that exceed the company's ability to pay. Meanwhile, the limit of their
liability only extends to the face value of their shareholding. This concept of
limited liability largely accounts for the success of this form of business
organization.
Ordinary shares entitle the owner to a share in the
company's net profit. This is calculated in the following way: the net profit
is divided by the total number of owned shares, producing a notional value per
share, known as a dividend. The individual's share of the profit is thus the
dividend multiplied by the number of shares that they own.
"Advantages Of Joint stock Company"
(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 career opportunities. 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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