Question

Justify the following statement.

The ownership and management are separated in Joint Stock Company.

Answer 1

(1) Although the shareholders are the joint owners of the joint stock company, its management remains in the hands of a few elected representatives of the shareholders known as the directors. The directors form themselves into a Board. Soon after the incorporation, the company is separated from its shareholders and receives an independent statutory status. All the affairs of the joint stock company are managed by the Board of Directors.
(2) The shareholders are large in number and they are scattered over a wide area. They are only interested in earning the returns on their holdings.
Thus, the shareholders have no direct contr01 over the affairs of the company. The Board of Directors formulates plans, strategies, and policies With respect to business activities. Thus, in a joint stock company, the ownership is separated from the management.