A Company is a voluntary association of persons formed to
carry on business in its own name under a common seal with the capital divided
into shares.
It is recognized by law as an artificial person having perpetual,
continuous, and uninterrupted existence. Members of the company are owned by
the share of a company gives perpetual succession to it. A Company is owned by
the shareholders and managed by the directors, elected by the shareholders of a
company. The liability of the shareholders remains limited to the extent of the
nominal value of shares purchased by them.
"Disadvantages Of Joint Stock Company"
(1)
Difficulty in Formation :-
A company is not
easy to form and establish. A number of persons should be ready to associate
for getting a company incorporated. It requires a lot of legal formalities to
be performed. The shares will have to be sold during the prescribed time. It is
both expensive and risky.
(2)
Lack of Secrecy :-
A company has to observe many legal
formalities. Most of the business activities are decided through meetings.
Profit and Loss Accounts and Balance Sheet are required to be published. So
trade secrets cannot be maintained.
(3)
Delay in Decisions :-
In company decisions making process is time
consuming. All important decisions are made by either Board of Directors of by
General Annual Meetings. So many opportunities may be lost due to delay in
decision making.
(4)
Separation of Ownership and Management :-
A company is owned by shareholders but managed
by directors. The shareholders play an insignificant role in the working of the
company. Though directors are owners of some qualification shares only, yet the
result of their activities are to be borne by all shareholders. The profit of
the company belongs to shareholders and the Board of Directors is paid only on
a commission. There is no direct relationship between efforts and rewards. So
the management does not take personal interest in the workings of company.
Hence, they may work against the interest of vast majority of shareholders.
(5)
Speculation in shares :-
The Joint Stock Companies facilitate
speculation in the shares at stock exchanges. It has been found that even the
directors and the managers of the company indulge in manipulating the value of
shares to their advantage. When they want to purchase the shares they lower the
rate of dividend and when they want to dispose of the shares they declare
dividends at a higher rate.
(6)
Oligarchic Management :-
The shareholders who are the real owners do
not have much voice in the management. A handful of shareholders, which also
manage the affairs of the company, are able to have control over it.
Theoretically the company is democratic, but in practice it is mostly a case of
oligarchy (Rule by few). A few persons hold power and control and try to
exploit the majority. Thus, it does not promote the interest of the
shareholders in general.
(7)
Excessive Regulation :-
A company has to observe excessive regulations
imposed by the law of the country. The excessive regulations are made with a
view to protect the interest of the shareholders and the public but in practice
they put obstacles in their normal and effective working. A lot of precious
time, efforts, and financial resources are wasted in complying with statutory
requirements.
(8)
Conflict of Interest :-
In a company there are many parties whose
interest may clash and the result may be conflict of interests. The management,
the shareholders, the employees, the creditors and the government may have
their own individual interests. Thus, a permanent type of conflict of interests
may continue to exist in the companies. These conflicts generally lead to
inefficiency in the management and reduce employee morale.
(9)
Neglect of Minority :-
All major issues in company are decided by the
shareholders having majority of them. Majority group always dominate over the
minority group whose interest are never represented in the management. The
company act provides measures against oppression of minority, but the measures
are not very effective.
As compared with a public limited company, the additional
advantages of a private limited company are as follows:
1. There is a greater
facility for the formation of a private company as compared with a public
company. The minimum shareholders may be only one in private whereas there must
be seven in the public company. Private company does not invite public
subscriptions to its shares.
2. A private company is free from certain
restriction placed on a public company. For instance a private company may
start business after getting the certificate of incorporation but public
company must get certificate of commencement of business. Private company need
not issue prospectus. No restrictions are placed on the allotment of shares and
appointment of directors.
From the above discussions, it may be concluded that the
advantages of company form of organization outnumber its weakness. It is clear
that the company is best suited for business, which requires huge capital and
maximum stability.
Hey there,
ReplyDeleteNice blog
check out our blogs
buy youtube channel india