Advantages and Limitations of Joint Stock Company

Advantages of Joint Stock Companies:

1. Limited Liability: Shareholders have limited liability, meaning their personal assets are protected from the company’s debts.
2. Capital Raising: Easier access to capital through the sale of shares.
3. Transferability of Shares: Shares can be bought and sold easily, providing liquidity to investors.
4. Professional Management: Allows for professional management and expertise.
5. Perpetual Existence: The company continues to exist even if shareholders change.

Disadvantages of Joint Stock Companies:

1. Complex Structure: Typically, a complex legal and administrative structure is required.
2. Shareholder Conflicts: Potential for conflicts among shareholders due to differing interests.
3. Loss of Control: Founders or majority shareholders may lose control as more shares are issued.
4. Reporting and Regulation: Extensive reporting and regulatory requirements can be burdensome.
5. Double Taxation: In some cases, corporate profits may be taxed at the corporate and shareholder levels.

Joint Stock Company and Its Features

A joint stock company, also known as a corporation, is a form of business organization where ownership is divided into shares of stock. These shares are typically bought and sold by individuals, and the ownership of the company is represented by the number of shares a person holds. Joint stock companies have a legal identity separate from their owners, limited liability for shareholders, and often exist as publicly traded entities on stock exchanges. They are known for their ability to raise significant capital from a large number of shareholders, making them suitable for large-scale businesses.

Features
Here are some key features of a joint stock company:

1. Limited Liability: Shareholders’ liability is typically limited to the amount they have invested in the company. Their personal assets are not usually at risk in case of the company’s financial troubles.
2. Separate Legal Entity: A company is considered a separate legal entity from its owners, which means it can enter into contracts, own property, and sue or be sued in its own name.
3. Perpetual Existence: The life of a company is not dependent on the lifespan of its shareholders. It can continue to exist even as shareholders come and go.
4. Ownership by Shareholders: Ownership in a joint stock company is represented by shares of stock, which can be easily bought and sold.
5. Large Capital Base: Joint stock companies can raise significant capital by issuing shares to a large number of investors, making them suitable for large-scale projects.
6. Professional Management: They often have a professional management team, with a separation between ownership (shareholders) and control (managers).
7. Regulation: Companies are subject to various regulations and reporting requirements, which vary by jurisdiction.
8. Transferability of Shares: Shares can usually be freely transferred, allowing for liquidity and ease of investment.
9. Public or Private: Companies can be publicly traded (with shares traded on stock exchanges) or privately held (with shares held by a select group of investors).

These features make joint stock companies a versatile and popular form of business organization for various industries and purposes.

TYPES OF CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility is traditionally broken into four categories: environmental, philanthropic, ethical, and economic responsibility.

1. Environmental Responsibility

Environmental responsibility refers to the belief that organizations should behave in as environmentally friendly a way as possible. It’s one of the most common forms of corporate social responsibility. Some companies use the term “environmental stewardship” to refer to such initiatives.

Companies that seek to embrace environmental responsibility can do so in several ways:

• Reducing pollution, greenhouse gas emissions, the use of single-use plastics, water consumption, and general waste
• Increasing reliance on renewable energy, sustainable resources, and recycled or partially recycled materials
• Offsetting negative environmental impact; for example, by planting trees, funding research, and donating to related causes

2. Ethical Responsibility

Ethical responsibility is concerned with ensuring an organization is operating in a fair and ethical manner. Organizations that embrace ethical responsibility aim to achieve fair treatment of all stakeholders, including leadership, investors, employees, suppliers, and customers.

Firms can embrace ethical responsibility in different ways. For example, a business might set its own, higher minimum wage if the one mandated by the state or federal government doesn’t constitute a “livable wage.” Likewise, a business might require that products, ingredients, materials, or components be sourced according to free trade standards. In this regard, many firms have processes to ensure they’re not purchasing products resulting from slavery or child labor.

3. Philanthropic Responsibility

Philanthropic responsibility refers to a business’s aim to actively make the world and society a better place.

In addition to acting as ethically and environmentally friendly as possible, organizations driven by philanthropic responsibility often dedicate a portion of their earnings. While many firms donate to charities and nonprofits that align with their guiding missions, others donate to worthy causes that don’t directly relate to their business. Others go so far as to create their own charitable trust or organization to give back.

4. Economic Responsibility

Economic responsibility is the practice of a firm backing all of its financial decisions in its commitment to do good in the areas listed above. The end goal is not to simply maximize profits, but positively impact the environment, people, and society.

Social responsibility advantages and disadvantages

What is Social Responsibility?

Social responsibility is a moral obligation on a company or an individual to take decisions or actions that is in favour and useful to society. Social responsibility in business is commonly known as Corporate Social Responsibility or CSR. For any company, this responsibility indicates that they acknowledge and appreciate the goals of the society, and therefore, would support them to achieve these goals.

Click here to learn more about What is a Sole proprietorship?

Advantages of Social Responsibility

A company can boost its morale and enhance work culture when they can engage their employees with some social causes. There are many factors that can have a positive impact on the business while delivering social responsibilities. Such few factors are

• Justification for existence and growth
• The long-term interest of the firm
• Avoidance of government regulation
• Maintenance of society
• Availability of resources with business
• Converting problems into opportunities
• A better environment for doing business
• Holding business responsible for social problems

Disadvantages of Social Responsibility

Like there are many advantages of social responsibility there are similarly many disadvantages for business. Few factors are mentioned below.

• Violation of profit maximization objective
• Burden on consumers
• Lack of social skills
• Lack of broad public support

Factors to be considered while starting a business

1. A Business Idea

Every business starts with an idea – a super duper idea that actually works. If you want your business to stand out, you will need to offer something that no one else has offered till date

2. Knowledge or Expertise

Once you know what business you want to start, you will have to start gaining the required knowledge and expertise to start that business.

This might take a lot of research and planning; but at the end all these efforts will ensure that you have everything in place to get your business idea off the ground.

3. Market or Demand

Once you are sure of starting your business, your next step would be to explore the market or the demand for your product or service.

4. Start-up Costs

Estimating your start-up costs is one of the very important things to consider when starting a new business. You will have to assess the total cost that is required to set up and run your business successfully.

5. Capital and Finance

No business in this world can run without money. Depending on the type of business you are starting and the initial costs that you will have to pay up for, you will know what kind of capital you would need to start your business.

6. Competition

Unless you know who your competitors are and what they are doing, you will not be able to survive in the market for long.

7. Location

One of the most important things needed to start a business is a good location.

8. Staff

Your staff members are the ones that can make or break your business.

9. Technology

Technology is one thing you can never compromise on when it comes to starting a new business in today’s world.

Joint stock company: features, merits & demerits

The simplest way to describe a joint stock company is that it is a business organisation that is owned jointly by all its shareholders. All the shareholders own a certain amount of stock in the company, which is represented by their shares.

Features of a Joint Stock Company

1] Artificial Legal Person

A company is a legal entity that has been created by the statues of law. Like a natural person, it can do certain things, like own property in its name, enter into a contract, borrow and lend money, sue or be sued, etc. It has also been granted certain rights by the law which it enjoys through its board of directors.

2] Separate Legal Entity

Unlike a proprietorship or partnership, the legal identity of a company and its members are separate. As soon as the joint stock company is incorporated it has its own distinct legal identity. So a member of the company is not liable for the company. And similarly, the company will not depend on any of its members for any business activities.

3] Incorporation

For a company to be recognized as a separate legal entity and for it to come into existence, it has to be incorporated. Not registering a joint stock company is not an option. Without incorporation, a company simply does not exist.

4] Perpetual Succession

The joint stock company is born out of the law, so the only way for the company to end is by the functioning of law. So the life of a company is in no way related to the life of its members. Members or shareholders of a company keep changing, but this does not affect the company’s life.

5] Limited Liability

This is one of the major points of difference between a company and a sole proprietorship and partnership. The liability of the shareholders of a company is limited. The personal assets of a member cannot be liquidated to repay the debts of a company.

Advantages of a Joint Stock Company

• One of the biggest drawing factors of a joint stock company is the limited liability of its members. their liability is only limited up to the unpaid amount on their shares. Since their personal wealth is safe, they are encouraged to invest in joint stock companies
• The shares of a company are transferable. Also, in the case of a listed public company they can also be sold in the market and be converted to cash. This ease of ownership is an added benefit.
• Perpetual succession is another advantage of a joint stock company. The death/retirement/insanity/etc does affect the life of a company. The only liquidation under the Companies Act will shut down a company.
• A company hires a board of directors to run all the activities. Very proficient, talented people are elected to the board and this results in effective and efficient management. Also, a company usually has large resources and this allows them to hire the best talent and professionals.

Disadvantages of a Joint Stock Company

• One disadvantage of a joint stock company is the complex and lengthy procedure for its formation. This can take up to several weeks and is a costly affair as well.
• According to the Companies Act, 2013 all public companies have to provide their financial records and other related documents to the registrar. These documents are then public documents, which any member of the public can access. This leads to a complete lack of secrecy for the company.
• And even during its day to day functioning a company has to follow a numerous number of laws, regulations, notifications, etc. It not only takes up time but also reduces the freedom of a company
• A company has many stakeholders like the shareholders, the promoters, the board of directors, the employees. the debenture holders etc. All these stakeholders look out for their benefit and it often leads to a conflict of interest.

Partnership: features and merits

Partnership is an association of two or more persons who have mutually decided to carry out business activities jointly and share its profits as well as losses. The partnership agreement may be written or oral.

features of partnership are:-

1. Two or More Persons 2. Agreement 3. Lawful Business 4. Registration 5. Profit Sharing 6. Agency Relationship 7. Unlimited Liability 8. Not a Separate Legal Entity

Advantages of a partnership include that:

• two heads (or more) are better than one
• your business is easy to establish and start-up costs are low
• more capital is available for the business
• you’ll have greater borrowing capacity
• high-calibre employees can be made partners
• there is opportunity for income splitting, an advantage of particular importance due to resultant tax savings
• partners’ business affairs are private
• there is limited external regulation
• it’s easy to change your legal structure later if circumstances change.

Disadvantages of a partnership include that:

• the liability of the partners for the debts of the business is unlimited
• each partner is ‘jointly and severally’ liable for the partnership’s debts; that is, each partner is liable for their share of the partnership debts as well as being liable for all the debts
• there is a risk of disagreements and friction among partners and management
• each partner is an agent of the partnership and is liable for actions by other partners
• if partners join or leave, you will probably have to value all the partnership assets and this can be costly.

Forms of business organisation

Most production and distribution activities are carried out by millions of people in different parts of the country by constituting various kinds of organizations.

These organizations are based on some form of ownership. This choice affects a number of managerial and financial issues, including the amount of taxes the entrepreneur would have to pay, whether the entrepreneur may be personally sued for unpaid business bills, and whether the venture will die automatically with the demise of the entrepreneur.

The forms of business organisation are:-

1. Sole Proprietorship
2. Partnership Firm
3. Limited Liability Partnership (LLP)
4. Joint Stock Company
5. One Person Company (OPC)
6. Co-Operatives.

Sole Proprietorship: Features, Advantages and Disadvantages

 Sole Proprietorship:

Sole proprietorship or individual entrepreneurship is a business concern owned and operated by one person. The sole proprietor is a person who carries on business exclusively by and for himself.

Fatures

i. Single ownership

ii. One man control

iii. Undivided risk

iv. Unlimited liability

v. No separate entity of the business

vi. No Government regulations.

Advantages

a) Simplicity

b) Quick decision

c) High secrecy

d) Flexibility

e) Motivation

Disadvantages

a) Limited funds

b) limited skills

c) Unlimited liablity

Classification of Business

Classification of Business Activities

The business activities are broadly classified into two categories namely:

1. Industry 
2. Commerce. 

Let us have brief information about both the terms.

1. Industry

The industry sector is defined as a sector where raw material gets transformed into beneficial products. An industry may create capital goods or consumer goods such as cloth, radio, bread, butter, etc. The industry can be classified into three categories namely: 

1. Primary Industry
2. Secondary Industry
3. Tertiary Industry

Let Us Understand Briefly About the Three Types of Industries:

Primary Industry

Primary industry is known as extractive industries. It involves activity connected with the production of wealth directly from natural resources such as water, air, land, etc. The primary sector involves activities like processing and extraction of natural resources etc. These primary industries are further divided as:

• Extractive Industry: Industries that draw out or extract products from natural sources are known as Extractive Industry. Some of the examples of extractive industries involve lumbering, farming, mining, hunting, and fishing operations.
• Genetic Industry: The industries that involve the ventures of breeding and rearing of living organisms, such as plants, birds, animals, etc. are known as genetic industry. For example, rearing of cattle dairy farms or rearing of plants in the nursery is covered in the genetic industry.

Secondary Industry

The industry that uses raw materials as input and produces finished products as output is known as the secondary industry. Secondary industries are divided into two parts:

• Manufacturing Industries: These industries are involved in the process of transformation of semi-finished goods or raw materials into finished goods.
• Construction Industries: These industries are involved with the construction of dams, roads, buildings, etc. These industries use the commodities of manufacturing industries such as iron and steel, cement or lime.

Tertiary industry

Tertiary industries are regarded as providing services that promote the flow of services and goods. This industry helps in the actions of the primary and secondary sectors.

2. Commerce

Commerce refers to the sum total of all the activities related to the placing of products before the ultimate consumers. It provides a significant link between the producer and consumers of goods. The term “ commerce” is defined as an activity that aims to remove the hindrance in the process of exchange. Commerce includes all those business activities which are related  to the sale and purchase of goods and services and facilitate their availability for consumption and use through trade, banking, insurance,and warehousing. Commerce is classified into two different categories namely:

1. Trade
2. Auxiliary to trade

1. Trade

Trade is an essential part of commerce. It involves selling and buying goods and services. There are two types of trades namely – Internal and External Trade.

• Internal Trade: It refers to the selling and buying of goods or services within the geographical contours of a country. Internal trade is also known as domestic trade or home trade. Internal trade is divided into two types: Retail trade and Wholesale trade.
• External Trade: External trade is referred to the selling and buying of goods or services beyond the geographical contours of the country. In external trade, the market is vast. External trade is of 3 types: export trade, import trade, and entrepot trade.

2. Auxiliary To Trade

In terms of business, the term “Auxiliary to Trade ” refers to all those activities which provide support to performing activities related to trade and industry. In fact, the auxiliary to trade provides a facilitating base to industry and trade. Such activities include insurance, banking, warehousing, advertising, and communication.