CLASS- 11
SUBJECT- COMMERCE
CHAPTER- JOINT STOCK COMPANY (Part-2)
OBJETIVES OF JOINT STOCK COMPANY
1. Rapid Industrialization- Rapid industrialization of the country is essential to achieve the objectives of the five year plans. Strong infrastructure is necessary for rapid development of industries. Infrastructure consists of power generation, coal, oil, steel, cement etc. These industries require huge investment and involve heavy risk.
2. Large scale production- Economic progress is not possible without higher productivity and better quality goods. This requires development and use of sophisticated technology. Joint Stock Company organization is required to undertake mass production and mass distribution of goods and services.
3. Better utlisation of resources- Corporate organization can make better use of country’s resource with the application of modern methods of production and distribution. Optimum use of natural resources is beneficial to society economically.
4. Mobilisation of idle resources- A public limited company can mobilize scattered and small savings of public. These financial resources are invested in industry. In this way corporate organization seeks to increase the rate of capital formation in a country.
5. Employment generation- Unemployment has become a chronic problem in India. Joint stock company provides direct employment to a large number of people. It also creates employment opportunities by developing ancillary industries.
6. Improvement in standard of living
7. Growth of social sector and rural economy
MERITS OF A COMPANY
1. Large Capital Resources- A Joint Stock Company has widespread appeal to investors of all types. Its capital is divided into shares of small value so that people with limited means can also buy them. A public company can have unlimited number of members and sell shares to them.
2. Limited Liability- The liability of a member of a company is limited to the face value of shares held by him. His personal property cannot be attached even if the company is unable to meet its creditors’ claim. The risk is known and restricted.
3. Continuity of existence- A joint stock company enjoys uninterrupted existence over a long period of time. As a company has a separate legal entity, death or insolvency of its members do not threaten its existence.
4. Efficient management- A company can employ highly qualified experts in different aeas of business management. Employment of professional managers helps in improving the efficiency of business transactions. The combined judgement and experience of several directors facilitate balanced and rational decisions.
5. Goodwill- A company enjoys a good reputation and prestige in the business world. A company’s activities are subject to scrutiny by auditors and the Government. Its accounts are published and they are public documents.
6. Transferability of shares
7. Social advantages
8. Democratic management
DEMERITS OF A COMPANY
1. Legal formalities- Formation of a company is a time consuming and expensive process. Too many legal formalities have to be observed and several documents have to be prepared and filed.
2. Lack of motivation- The directors and other officers of a company have little personal involvement in the efficient management of a company. Divorce between ownership and control and absence of a direct link between effort and reward lead to lack of personal interest and incentive.
3. Delay in decision- Red tape and bureaucracy do not permit quick decisions and prompt action. There is little scope for personal initiative and a sense of responsibility. Paid employees like to play safe and tend to shift responsibility.
4. Corrupt management- In a company, there is often danger of fraud and misuse of property by dishonest management. Bogus companies may be formed to deprive the investors of their hard-earned money. Clever and dishonest promoters and directors may exploit the small and ignorant investors for their personal gain.
5. Conflict of interests- There is a possibility of conflicts between various groups, e.g., shareholders, debtentureholder, directors,etc. Such conflicts reduce employee morale and efficiency of operations.
6. Social evils
7. Excessive Government control
8. Unhealthy speculation
CAUSES OF POPULARITY OF A COMPANY
1. Accumulation of large funds- No form of organization can accumulate as much financial resources as a joint stock company. A public company can have any number of members exceeding seven, Its capital is divided into a large number of shares of small value.
2. Limited liability- The liability of a shareholder is limited to the face of shares held by him. It enables the management of a company to take greater risk and to undertake large scale operations.
3. Stability- A company is a separate legal entity. Its enjoy a continuous and interrupted existence. Therefore, there can be continuity of policy and administration in company form of organization. 4. Shares of a public limited company are freely transferable. A person can become a member and can withdraw his investment whenever necessary.
5. Divided Risk- Risk of loss in a company is divided among a large number of shareholders. The encourages interested persons to become members in a company.
6. Better management- A joint stoc company can employ experts to manage its business affairs. It can avail of advantages of specialization. Therefore, it can ensure efficient and effective management of resources.
7. Expansion and growth- Company organization is best suited for large scale business operations. There is unlimited scope for growth and expansion in a company. A company can secure economics of large scale operations.
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