Merits and Demerits of Joint Stock Company
MAY 15, 2020
DAY 5
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GOOD MORNING BOYS! I HOPE YOU ALL ARE FINE AND IN THE BEST OF YOUR HEALTH. ALL THE BEST FOR YOUR PA 1 EXAMS STARTING FROM MONDAY./
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LEARNING OUTCOMES- At the end of the topic, students will be able to:
1) Comprehend the merits of joint stock company.
2) Discuss the demerits of joint stock company.
WATCH A SMALL VIDEO FIRST TO UNDERSTAND THE TOPIC BETTER:
NOW TAKE DOWN THE NOTES:
Q.23 Explain the merits of joint stock company . (5)
Ans- 1. Limited liability-
a) The shareholders degree of risk is limited to its investment in the company.
b) The creditors can be paid by using company's assets only because it is the company who goes to their creditors. Shareholders are liable only to the limit of their investment in the company. For eg- Mr A holds 2000 shares at rupees 10 each in the company. His maximum liability would be limited to 20000 only.
2. Transfer of interest-
a) The shares of the joint stock company can easily be sold in the open market or a stock exchange for cash.
b) There is no need of prior permission or consent from the other shareholders. Investors invest
money without any fear of blockage of investment.
3. Perpetual existence -
a) A company has separate entity from its members allows the company to exist forever.
b) The member's death, retirement, insolvency , etc does not affect the company's existence and it can come to an end only through the provisions of the Companies Act.
4. Scope for expansion-
a) A company can raise funds from public as well as loans from financial institution or banks .
b) This gives greater scope for large scale operations and expansions .
5. Professional Management-
a) Joint stock company is operated on large scale. Thus there is a need and possibility of appointing professionals for handling the business operations.
b) The employment of individuals with expertise helps to take balanced and rational decisions. Also the companies have huge funds so they can easily afford to pay good salaries to the professional managers.
Q.24 Explain the limitations of joint stock company. (5)
Ans 1. Complexity in formation-
a) Incorporation of a company requires lot of documentation and legal formalities which is a very time consuming and expensive process .
b) One has to have proper knowledge of all the procedures before starting the process of company formation or appoint professionals to complete the formalities.
2. Lack of secrecy-
a) The Companies Act requires each public company to submit lot of information and file various documents with the Registrar of Companies.
b) Such information is available to the general public also in the form of financial statements like balance sheet and profit and loss account . So, it is difficult to maintain complete secrecy about the operations of company.
3. Impersonal work environment -
a) When business is not managed by the owners, it lacks personal involvement and effort to achieve the best.
b) Large scale operations also makes it impossible for the owners and management to have personal relationship with its employees, customers and other stakeholders.
4. Oligarchic management-
a) Though the Board of Directors is elected by the shareholders who have very little control over the running of the business as they are spread all over the country and very few of them attend the annual meetings and discuss the decisions taken by the board of directors .
b) Oligarchy means control by a few . Directors have only the powers to take all the important
decisions and sometimes these decisions are influenced by their personal interest.
5. Conflict in interests-
a) There may be conflict of interest amongst the various stakeholders of a company .For example- employees may be interested in higher salaries, consumers desire higher quality products at lower prices, shareholders want higher returns in the form of dividends, etc.
b) These demands pose problems in managing the company as it becomes difficult to satisfy such diverse interests.
YESTERDAY'S ANSWERS:
1) Registration is optional but if business is not registered then it cannot:
a) file any legal case against third party or any of the partners.
b) the partners cannot file a case against firm or other partners.
2) Partnership business is most suitable for:
a) Medium Sized Business.
b) For projects which has to be completed within a given time period.
c) For people who have professional expertise or knowledge like Law Firms, Chartered Accountancy Firms, etc.
( Please note that these are short answers only.Write in detail during exams).
TODAY'S QUESTIONS:
1) "ONE MAN CONTROL IS THE BEST IN THE WORLD IF THAT MAN IS BIG ENOUGH TO HANDLE EVERYTHING." COMMENT (5)
2) FOR WHICH OF THE FOLLOWING TYPES OF BUSINESS DO YOU THINK A SOLE PROPRIETORSHIP FORM OF ORGANISATION AND PARTNERSHIP FORM OF BUSINESS WOULD BE MORE SUITABLE AND WHY?
a) Grocery Store
b) Medical Clinic
c) Legal Consultancy
d) Craft Centre
e) Internet Cafe
f) Chartered Accountancy Firm. (6)
GOD BLESS YOU ALL!
Ans- 1. Limited liability-
a) The shareholders degree of risk is limited to its investment in the company.
b) The creditors can be paid by using company's assets only because it is the company who goes to their creditors. Shareholders are liable only to the limit of their investment in the company. For eg- Mr A holds 2000 shares at rupees 10 each in the company. His maximum liability would be limited to 20000 only.
2. Transfer of interest-
a) The shares of the joint stock company can easily be sold in the open market or a stock exchange for cash.
b) There is no need of prior permission or consent from the other shareholders. Investors invest
money without any fear of blockage of investment.
3. Perpetual existence -
a) A company has separate entity from its members allows the company to exist forever.
b) The member's death, retirement, insolvency , etc does not affect the company's existence and it can come to an end only through the provisions of the Companies Act.
4. Scope for expansion-
a) A company can raise funds from public as well as loans from financial institution or banks .
b) This gives greater scope for large scale operations and expansions .
5. Professional Management-
a) Joint stock company is operated on large scale. Thus there is a need and possibility of appointing professionals for handling the business operations.
b) The employment of individuals with expertise helps to take balanced and rational decisions. Also the companies have huge funds so they can easily afford to pay good salaries to the professional managers.
Q.24 Explain the limitations of joint stock company. (5)
Ans 1. Complexity in formation-
a) Incorporation of a company requires lot of documentation and legal formalities which is a very time consuming and expensive process .
b) One has to have proper knowledge of all the procedures before starting the process of company formation or appoint professionals to complete the formalities.
2. Lack of secrecy-
a) The Companies Act requires each public company to submit lot of information and file various documents with the Registrar of Companies.
b) Such information is available to the general public also in the form of financial statements like balance sheet and profit and loss account . So, it is difficult to maintain complete secrecy about the operations of company.
3. Impersonal work environment -
a) When business is not managed by the owners, it lacks personal involvement and effort to achieve the best.
b) Large scale operations also makes it impossible for the owners and management to have personal relationship with its employees, customers and other stakeholders.
4. Oligarchic management-
a) Though the Board of Directors is elected by the shareholders who have very little control over the running of the business as they are spread all over the country and very few of them attend the annual meetings and discuss the decisions taken by the board of directors .
b) Oligarchy means control by a few . Directors have only the powers to take all the important
decisions and sometimes these decisions are influenced by their personal interest.
5. Conflict in interests-
a) There may be conflict of interest amongst the various stakeholders of a company .For example- employees may be interested in higher salaries, consumers desire higher quality products at lower prices, shareholders want higher returns in the form of dividends, etc.
b) These demands pose problems in managing the company as it becomes difficult to satisfy such diverse interests.
YESTERDAY'S ANSWERS:
1) Registration is optional but if business is not registered then it cannot:
a) file any legal case against third party or any of the partners.
b) the partners cannot file a case against firm or other partners.
2) Partnership business is most suitable for:
a) Medium Sized Business.
b) For projects which has to be completed within a given time period.
c) For people who have professional expertise or knowledge like Law Firms, Chartered Accountancy Firms, etc.
( Please note that these are short answers only.Write in detail during exams).
TODAY'S QUESTIONS:
1) "ONE MAN CONTROL IS THE BEST IN THE WORLD IF THAT MAN IS BIG ENOUGH TO HANDLE EVERYTHING." COMMENT (5)
2) FOR WHICH OF THE FOLLOWING TYPES OF BUSINESS DO YOU THINK A SOLE PROPRIETORSHIP FORM OF ORGANISATION AND PARTNERSHIP FORM OF BUSINESS WOULD BE MORE SUITABLE AND WHY?
a) Grocery Store
b) Medical Clinic
c) Legal Consultancy
d) Craft Centre
e) Internet Cafe
f) Chartered Accountancy Firm. (6)
GOD BLESS YOU ALL!
Arnas Kumar
ReplyDelete11-A
Roll no. 29
Gatij Shrivastava
ReplyDeleteRoll no.32
Class 11B
Aditya Upreti
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11-B
John Alexander
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Roll no.4
Pratham Jain
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Roll no.13
Rohit jacob
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12