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Chapter: 11th Commerce : Joint Stock Company

Advantages of a Joint Stock Company

A joint stock company has many advantages. These are given below:

Advantages

 

A joint stock company has many advantages. These are given below:

 

i. Large Capital

A company can secure large capital compared to a sole trader or partnership. Large amount of capital is necessary for conducting business on a large scale. For e.g. Reliance has invested more than  Rs.  25,000 crore in its telecom venture. Raising such huge amount of funds would be utter impossible in a sole- tradership or partnership.

 

ii. Limited Liability

The liability of a shareholder is limited. In the case of a company limited by guarantee, his liability is restricted to the amount that he has guaranteed to contribute in the event of winding up of the company.

 

iii. Transferability of Shares

Transaction of Shares between two individuals is easy. So there is liquidity of investment. Any shareholder can easily convert his shares into money by selling his shares.

 

iv. Perpetual Succession

A company has perpetual or continuous existence. Members may go or new members may come in, but the company continues to exist. This ensures continuity in operations and the company can undertake long term investments.

 

v. Promotion of Saving and Investment Habit

Joint stock company system encourages people to save. Even small amount can be used for the purchase of shares. A person can buy even one share of a company.

 

vi. Risk Bearing Capacity

The loss of the company is distributed over a large number  of  shareholders. So each shareholder bears a very little amount of loss. Hence the company form of organization has risk bearing capacity.

 

vii. Economies of Large-scale Operation

A joint stock company can undertake business on large scale. As a result it can derive all the advantages of large scale production. For e.g. Hero Moto Corp Ltd. 2015, the world’s largest seller of two-wheelers, manufactures motorbikes on a large scale and is able to enjoy cost efficiency.

 

viii. Economic Development

Joint stock company system has been responsible for the rapid growth of industries and trade in many countries. Since Joint Stock Companies have large financial resources, they are able to undertake large scale production, satisfy the needs of more number of consumers, create large scale employment opportunities, promote balanced regional development and contribute substantially to the government by way of taxes.

 


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11th Commerce : Joint Stock Company : Advantages of a Joint Stock Company |


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