Question

Justify the following statement.

The Joint Stock Company collects huge capital from the public.

Answer 1

(1) A joint stock company can raise a large amount of funds through different sources like
(i) the issue of shares and debentures,
(ii) accepting public deposits, etc. A company has a large number of shareholders spread over a very wide area. In the case of a public company, there is no maximum limit for the number of shareholders. Hence, it can raise huge capital from a large number of shareholders. Smaller denomination of shares, limited liability, easy liquidity, and transferability, etc. enable even a common man to invest in the shares of a company. Thus, a company can raise huge funds through the mobilisation of scattered savings of the people.

(2) As there are different types of shares, the company can make an appeal to different kinds of investors to collect a huge amount of funds in the form of share capital. In addition, it can raise borrowed capital by issuing debentures of different types and accepting deposits from the public. AS company enjoys better creditworthiness in the money market, it can raise borrowed capital by taking short term, medium-term and long term loans from the banks and other financial institutions.