Question

Why would a business owner opt for a joint stock company instead of a sole proprietorship if they want to raise a large amount of capital for expansion?

Answer 1

When a substantial amount of capital is necessary for expansion, a business owner will choose a joint stock company over a sole proprietorship. Unlike a sole proprietorship, which relies solely on the owner’s personal cash and restricted borrowings, a company can raise enormous financial resources by issuing public shares and debentures. Investors are also more likely to donate because their liability is limited to the unpaid value of their stock. In addition, a joint stock company has continuous succession and better public confidence, making it the best structure for large-scale expansion. Thus, it ensures growth and stability.