Question

Give 2 demrits of joint stock company​

Answer 1

Demerits of Joint Stock Company is as Follows: -

1. Difficulty in Formation: -The formation of the company is in itself a very difficult and involves too many formalities. Promoters have to prepare and submit various documents to the registrar of companies for approval i.e. Articles of Association, Memorandum of Association etc. the public limited company cannot commence business without obtaining a certificate of commencement of business. Registration of Joint Stock Companies is compulsory as per Indian Companies Act, 1956. Thus the formation is complicated, costly and time consuming.

2. Delay in Decisions: - In sole trading concern, and partnership firm decisions can be taken quickly. Company business is managed by Board of Directors who are not owners of the company. Therefore, there is no direct motivation for directors to give their best to the company. Moreover, for taking various decisions and getting them approved from share holders, they have to hold board Meeting and share holders meeting, for which a proper procedure has to be followed. That results into delay in decision making, good business opportunities may be lost.

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Answer 2

Limitations of Joint stock company is as follows :-

i) Complexity in formation :- The process of formation of a company is time consuming, expensive and requires extensive legal knowledge. It involves many step and procedures like promotion, incorporation, capital subscription and commencement of business.

ii) Lack of Secrecy :- According to Companies Act, 2013 it is necessary for the public company to provide information to general public. Thus it is difficult to maintain secrecy about operation of company.