QS Study

Superiority of Joint Stock Company over other Forms of Business Firm

A Company that operates its business by getting combined capital, limited liability, having a distinct personality and perpetual succession by law is called a Joint Stock Company. It is being invented as there are some disadvantages and problems in the sole proprietorship and partnership business. But whether Joint Stock Company is better than those or not, is described below:

Legal position: The succession of the Joint Stock Company is treated as separate and distinct personality from the owners. It always uses its own logo and conducts all types of financial transactions by using its own name. These types of organization can take legal action against any person or any organization by using its own name and other organizations also file the case against the respective company by using the legal position of a company. On the other hand, sole proprietorship or partnership is not possible within easy.

Liability: In Joint Stock Company, the liability of the shareholders is confined by their purchased shares. That’s why the shareholders invest their money with full satisfaction. On the other hand, the owner of a sole proprietorship and partnership businesses have unlimited liability.

Capital: Sufficient capital is the great advantage of Joint Stock Company. As Joint Stock Company has perpetual succession, it can raise capital by selling shares in the capital market up to its authorized capital. The more capital, the more power can hold by the company in the competitive market. On the other hand, sole proprietor or partnership is not possible to collect huge capital.

Research and development: It is much easier to conduct research program for Joint Stock Company due to available adequate information. The results that come out from the research are to help the directors for taking action to solve the problems. On the other hand, sole proprietorship or partnership is not doing research due to different constraints in the business.

Share transferability: The shareholders are being interested in the shares of Public Limited Company because they got chance of buying shares at the lower price and selling shares when the price becomes higher. That’s why Joint Stock Company more popular as compared to other types of firms.

Secrecy: Sometimes a large number of directors and managers become an obstacle to maintain the secrecy of the company. Company’s important decisions, competitive strategies, the price of the products, mechanism of production, creative advertisement plans etc are much more important materials for the success of the company. But keeping these things secret is not possible because of its large number of directors and managers. But sole proprietorship and partnership business get strung secrecy as there is a limited number of directors and owners.

Authority: There is an active democratic system in the company and shareholders have the voting power to elect the directors, shareholders have no direct contribution to the operation or function of the organization. As there is no direct participation, a few directors and executives sometimes take decision for their own interest, not for the best interest of the company or not for the wealth maximization of all community or stakeholders.

From overall consideration, it can be said that to large extent Joint Stock Company is better than Sole Proprietor; and Partnership Business. But every business forms are not totally out of problems. Hence, Joint Stock Company has its own problem or even more. For this reason, we have to hold on and take proper measures to reduce those.