There is little scope for personal initiative and a sense of responsibility. When they want to purchase the shares they lower the rate of dividend and when they want to dispose of the shares they declare dividends at a higher rate. Since its capital is divided into shares of small value even a person of small means can contribute to its capital by simply purchasing its shares. Concentration of Control in Few Hands: In theory, democratic principles are followed in the management of companies, but in practice it is nothing but oligarchy of managing director and directors leading to concentration of control in a few hands. The management, the shareholders, the employees, the creditors and the government may have their own individual interests. So many opportunities may be lost because of a delay in decision-making.
The capital of the company is divided into numerous parts of small value called shares and this attracts even the person with limited resources. Expose of secrecy: Under certain obligations such as to maintain accounts and thus publish its annual accounts, to file Memorandum and Article of Association etc. Because it's annual accounts and balance sheet have to be published. Difficulty of Formation: Promotion of a company is not an easy task. Interdepartmental conflicts can be harmful. This feature attracts large number of investors to invest in the company.
It has also indirectly helped the growth of financial institutions such as banks and insurance companies by providing avenues to invest their funds. They cause instances in the society. This is one of the important characteristics of joint stock companies that has made it very popular form of business. The stability of company organisation permits it to undertake projects of long duration, and also offers a great attraction to the creditors and investors to put their resources in the business. This may lead to loss of business opportunities.
Being an artificial person created by Law Company has to pay taxes to the Government on its income. This affects the smooth functioning of a company. The limited liability encourages many persons to invest in shares of joint stock companies. It makes the business inefficient. A company is subject to high tax rates and the shareholders are subjected to double taxation. Without these features of joint stock companies, it would have been better to call it a firm rather than a company form of organization.
If the share is partly paid, then he can be required to pay only the unpaid value of the share. Directors are responsible and accountable to the general body of shareholders. It means that the company can own property, make contracts, and file suits in it own name. There is no direct relationship between efforts and rewards. A company is a voluntary association of persons joining hands with a common motive. A shareholder is free to withdraw his membership from the company by transferring his shares.
The business has long life and it is not affected by the incapacity of shareholders. It has got separate legal existence. The shareholders have no say in the affairs of the company. The process of formation requires the services of specialists such as chartered accountants, company secretaries, etc. A joint stock company raises funds through contributions from a large number of people.
Also, many of these disadvantages can be avoided through conscious efforts. Hence, there exists professional management and the Board is accountable to all their investors. If some business opportunity arises and a quick decision is needed, it will not be possible to arrange meetings all of a sudden. Disadvantages of Joint Stock Company Following are the main disadvantages of Joint stock company : 1. These savings can be better used for productive purposes. Joint Stock Company — Meaning, Advantages, Disadvantages Registration: Registration of Joint Stock Company is compulsory by law. After the first ten years of settlement, interest in the colony began to fade because the promises of finding gold in Virginia never materialized.
So many opportunities may be lost due to delay in decision making. Establishing a joint stock organization is not easy. There is no direct relationship between efforts and rewards. Lack of Prompt Decision: The prompt decisions which are possible in case of other organizations such as sole-trading organization and partnership are not possible in a company form of organization. If the business remains well managed, it can live on indefinitely.