Question

Answer in brief.

State any four demerits of Joint Stock Company.

Answer 1

The demerits of Joint Stock Company are as follows:

1. Rigid Formation: The formation of a joint stock company is lengthy, difficult, and time consuming. There are many legal formalities for starting a business. Promoters have to prepare documents like Articles of Association, Memorandum of Association, etc. A private company has to go through two stages of information. A public company has to go through four stages of information.
2. Delay in Decision Making Process: In a company form of the organization no single individual can make a policy decision. All important decisions are taken by the Board of Directors. The decision making process is time consuming. Businesses may lose opportunities because of delays in decision making.
3. Lack of Secrecy: The management of companies remain in the hands of many persons. Everything is discussed in the meetings of the Board of Directors. All important documents are available at the registered office for inspection. Thus, there is no secrecy in business matters.
4. Excessive Government Control: A large number of rules are framed for the working of companies. The companies will have to follow rules for internal working. The government tries to regulate the working of the companies because large public money is involved. In case regulations are not complied with, large Penalties are involved.
5. High Cost of Management: The management of joint stock company form of organization is costly. Services of experts like share brokers, underwriters, solicitors, bankers are needed which is costly. Highly qualified staff is needed. They are paid good salaries. The dissolution of the firm is also costly.