Joint-Stock Company

A joint-stock company is a developed and large-scale type of partnership business operated by many investors who invest together. It has more shareholders than a partnership. In this business, the investor is called a shareholder.

It has a large production capacity. It is operated with the aim of making profit. It is also easy to accumulate capital because there are many shareholders. The necessary capital for this is divided into small parts, which are called shares.

Individuals who buy shares are called shareholders. Thus, a joint-stock company is a voluntary association of individuals motivated by the aim of making profit.

According to Professor L.H. Haney, "A joint-stock company is a voluntary association of individuals for profit, having a capital divided into transferable shares and whose ownership is the condition of membership."

This company is also called a legal person or an artificial person because it is created by law. It has a separate existence and perpetual succession.

Advantages of a Joint-Stock Company

(a) Easy to raise capital: A joint-stock company is organized by many shareholders who invest collectively. When capital is needed, they issue shares and sell many shares to the public at small prices. Individuals with ordinary income can also buy shares according to their capacity. This results in the collection of a large amount of capital.

(b) Benefits from the services of experts: Since this company has a large amount of capital, it is possible to increase work efficiency by involving qualified, experienced, and capable experts in the company. This makes it possible to produce high-quality goods in large quantities at a lower cost.

(c) Encouragement of savings and investment: This company allows even those with small investments to become owners of the company, which encourages people with savings capacity to save and invest. It also encourages those who do not have much capital to save, invest capital, and participate in production work.

(d) Easy to bear risk: It is not always the case that the organization only makes profits. Sometimes the company has to bear losses due to unforeseen events, and sometimes the company can be at risk if the market demand forecast is not as expected. The burden of such risk is borne by all the shareholders of the company, making it easier to bear.

(e) Limited liability: The company is operated by collecting small amounts of capital from people with ordinary incomes. If the company incurs losses for any reason, they only have to bear losses up to the amount they invested in purchasing shares. They do not have to find additional funds to bear the losses.

(f) Democratic management: For the operation of the company, the investing shareholders themselves appoint directors unanimously or by voting in a democratic manner. This method ensures the selection of directors with suitable skills and efficient capabilities for running the company. If the directors do not work properly, the shareholders can also remove such directors.

(g) Large-scale production: Since it is easy to raise capital and a large amount of capital is collected in a joint-stock company, it is possible to appoint experts as needed in the business and install modern machinery and equipment, making it possible to produce goods on a large scale at a lower cost.

(h) Long life: Since this company is established through a legal process, its termination is also by law. Unlike individual and partnership systems, it cannot be established in a short time and dissolved quickly. The death of any shareholder or their desire to leave the company does not affect the stability of the company. Therefore, it has a permanent life, a long life.

(i) Shares can be bought and sold: If a shareholder needs money or wants to leave the company, they can recover money by selling their shares. Similarly, anyone who wants to invest in the company can buy shares.

Disadvantages of a Joint-Stock Company

(a) Difficulty in establishment: Establishing a company requires completing many cumbersome legal procedures such as raising capital, preparing articles of association, registering the company, and obtaining licenses. This makes establishment difficult.

(b) Undemocratic management: The number of shareholders in this is high. The individuals who invest in the company may be located in remote parts of the country or even abroad. This makes it impossible to participate in the selection of directors. On the other hand, shareholders who invest a large amount of capital, i.e., have more shares, can also suppress shareholders with fewer shares. Therefore, although it is said that there is democratic management in a joint-stock company, undemocratic behavior may occur in practice.

(c) Lack of cordial relationship between workers and owners: Many workers are employed in this type of company. A manager is appointed to run the daily operations of the company. Although the actual owners are the shareholders, the workers' relationship is with the manager. The manager has to get approval from the board of directors to address the workers' grievances and complaints. If this cannot be done, unpleasant incidents such as lockouts and strikes may occur, causing significant losses to the company. This creates a lack of cordial relationship between workers and owners.

(d) Delay in decision-making: Under this company, any important decision has to wait until the time of the general meeting. The general meeting is usually held once a year. Since the number of shareholders is high, sometimes the meeting cannot be started even due to the lack of a quorum.

(e) Lack of dedication to the company's work: This company has limited liability and shares can be transferred. Due to this, shareholders do not take much interest in the company's business. Shareholders may not even attend the general meeting. This can hinder the progress of the company.

(f) Exploitation by directors: Directors can exploit shareholders for their own benefit by taking higher salaries, commissions, buying and selling raw materials for personal gain, and hiring their own people instead of skilled people.

(g) Lack of confidentiality: There is a lack of confidentiality in a joint-stock company because any decision has to be approved by the general meeting. Annual accounts also have to be published every year. Such a lack of confidentiality can be harmful to the business.

(h) Birth of monopoly: Since such a company has a large amount of capital, businesses operating on a small scale cannot compete and may be overshadowed. This can lead to the birth of a monopoly.

(i) Benefit to directors: The members of the board of directors are selected from among the shareholders. They are fully aware of whether the company is running at a loss or a profit. Due to this, if the company is about to make a profit, they buy more shares from others at a higher price, and if it is about to incur a loss, they sell their own shares to others.