Question

Attempt the following:

Explain the merits of Joint Stock Company.

Answer 1

The merits of the Joint Stock Company are as follows:

1. Transferability of Shares: Shares of a public company can be transferred easily and freely. There is a high degree of liquidity in shares. Permission of directors or members need not be taken for buying and selling shares. This helps to attract investors to public companies.
2. Relief in Taxation: The tax burden in the company is less. Provisions of the Income Tax Act say that companies have to pay tax at a flat rate. This is less than taxes paid by individuals earning very high income. If a company is started in backward areas, the company gets relief in the form of tax holding.
3. More Scope for Expansion: The capital raising capacity of the company is high. The company has a lot of funds at its disposal. A part of the profit is also ploughed back for business. This enables the growth and expansion of a business.
4. Public Confidence: Joint Stock Company has to publish books of accounts. Which is audited by CA. Annual reports of the company have to be published. The activities of the Company are regulated by the provision of Companies Act, 2013. Therefore, the company gets public support.
5. Limited Liability: The liability of shareholders is limited. It is to the extent of the unpaid value of shares. Shareholders cannot be liable for the debts of the company. Features of limited liability attract more investors to the business.
6. Expert Services: Joint Stock Company an appoint experts for managing their huge business operations. They appoint experts like Legal advisors, management experts, auditors, consultants, etc.
7. Democratic Management: Management of a company is democratic. Shareholders elect representatives called as Board of Directors. They manage the business. Directors are accountable to shareholders. Policy decisions are taken by Directors but have to be approved by shareholders. The shareholders can also remove inefficient Directors.
8. Perpetual Succession: Joint Stock Company enjoys a long and stable life. Its stability is not affected by death insolvency or retirement, of any of its members.
9. Professional Management: Large funds are at the disposal of the companies. Therefore, experts can be appointed in different areas of business. As good salaries can be paid, highly qualified personnel like Cost Accountants, Sales Experts, Market Experts, etc. can be appointed. Even the Board of Directors has competent persons who manage the business efficiently.
10. A large amount of Capital: A company can collect a large amount of capital. There is no limit on the maximum number of members. Due to features of limited liability, transferability of shares and liquidity, many investors are attracted to become shareholders of the company. Loans are also available to Joint Stock Companies.