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Chapter: 11th Commerce : Joint Stock Company

Disadvantages of a Joint Stock Company

The following are the disadvantages of company form of organization

Disadvantages

 

The following are the disadvantages of company form of organization

 

i. Costly and difficult to form

Number  of  legal  formalities   must   be observed in the formation of the company. To observe these legal formalities, promoters have to spend much time and money.

 

ii. Scope for dishonest and unscrupulous management

The directors manage the company with the help of paid officers. If the directors are dishonest, they  may make personal gain at the expense of the company. They may misuse their power and position.

 

iii. Management oligarchy

A few rich persons may secure control over the affairs of the company. Thus, the management of a joint stock company might become oligarchic in character. (Oligarchy means a small group of people havimg control)

 

iv. Speculation

A few individuals may corner the shares to gain control over the company.

 

v. Lack of interest

The officers of the company do not have incentive to work hard. They are not usually inclined to take risks. They lack initiative.

 

vi. Lack of good labour relations

In sole trading business personal supervision is possible. But in company form of organization there is lack of personal contact between owners and workers. As a result, there is scope for more industrial disputes in a company form of organization.

 

vii. High taxation

Joint stock companies have to pay tax at higher rates compared to other forms of organizations.

 

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


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