Disadvantage of Joint Stock Company,Joint stock companies have several advantages, such as the ability to raise large amounts of capital, limited liability for shareholders, and continuity of existence. However, they also have some disadvantages, including:
Disadvantage of Joint Stock Company
- Lack of secrecy:
In a Joint stock company the management has to make an annual report regarding sales, net profits, assets, liabilities, etc of the company. The competitors thus gain full knowledge of strong and weak position of the company. The employees also discloses the secretes of the business to rival in the business.
- Speculation:
The stock company facilitates speculation in shares at stock exchanges. The reckless speculation is harmful to the interests of the shareholders and for sound investment.
- Misuse or fraud: .
The Joint stock company is incorporate by taking definite legal steps. If the promoters are dishonest and want to exploit the scattered shareholders they give a very rosy picture of high profits in the prospectus. The widow dressing of the prospectus often misleads the investors who are later on exploited by the promoters. This shakes the confidence of the investors in other sound companies.
- Separation of ownership:
In a Joint stock company, the shareholders who are real investors not allowed to take part in the operations of the business There is thus a separation of ownership from control. The directors in collaboration with the managers often exploit the’helpless shareholders.
- Shareholder s problems:
The shareholders of a company mostly remain unknown to one another Most of them have neither time for the technical knowledge to know the affairs of the business where they have invest a part of their savings. If the company is suffering from losses they sell their shares and shift the burden to the new shareholders. If it expected to earn profits they purchase the shares and earn maximum return.
- Double tax:
The joint stock company is subject to double taxation It pays tax on its earnings to the government. The shareholders on the receipt of dividend also pay the tax from the company.
- Difficult formation:
The formation of a joint stock company is much more complicated than sole proprietorship or partnership. There are mostly legal formalities, ‘b chare to be observed with consumer a greater amount of time, energy and the money also.
- Evils from the social point view:
The big companies become a source of encouraging monopolies. In order to secure more benefits, the influential shareholders of the company provide financial assistance to the political parties and the government officers.
- Grouping for power:
The management of the company remain in the hands of group which acquires controlling shares There remains tussle of group for power between groups
- Favoritism:
There is often a top heavy management in the company’s organization The director’s, employ their near and clear one’s at the key positions of the company who may or may not be fit for the assigned responsibilities.
- Lack of Relationship:
As the size of business run by the company is expanding day by day feeling of separation between the employers and the employees widening. The company is thus considered soulless and cold blooded.
Conclusion:
Company removes the problems of limited capital and unlimited liability Company is suitable for large scale business. Companies play important role in the economic development of the country.
