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Saturday, 4 June 2011

Disadvantages of Joint Stock Company

Disadvantages of Joint Stock Company

Following are the main disadvantages of Joint stock company :

1. Complicated process :-
The formation of joint stock company is a very difficult process. Many legal formalities are observed by the founders. A lot of time and money is wasted, it is disadvantage of joint stock company.

2. Difference of opinion :-
Sometimes difference of opinion takes place on some important issue among the directors and officers of the company. It becomes the cause of loss.

3. Lack of responsibility :-
There is lack of personal interest and responsibility in the business of a company. In case of any mistake every body tries to transfer its responsibility to other person. It makes the business inefficient.

4. Nepotism :-
General director of company employ their incapable relatives and friends on key jobs. Due to this cost of production increases and company suffer a loss.

5. Centralization of powers :-
All the powers of the joint stock company are in few hands.Because an ordinary shareholder can not take keen interest in the company affairs. So directors take undue benefits from the company.

6. Growth of monopoly :-
Joint stock company wants a monopolistic control over the market.While monopoly is always against the public interest.

7. Lack of secrecy :-
A company cannot maintain these secrecy because it submits the various reports to registrar. Sometime it affects the goodwill of the firm badly.

8. Corruption :-
Sometimes director of the company do not show the true picture of the company to the public and they deceive them.

9. Employer and workers relationship :-
A joint stock company expands the business on large scale. There are large number of workers, so there is no direct link between the workers and employer. It becomes the cause of strike and lockup.

10. Lack of team spirit :-
In the company business every one keeps in view his own interest. When there is a risk of loss shareholders begin to sell their shares.

11. Lack of freedom :-
This type of business organization cannot performs its function freely. Because it has to submit various reports to Govt. So there is much interference of the Govt.

12. Double taxes :-
A joint stock company has to pay double taxes on whole profit. Secondly every shareholder will pay tax on his individual income.

13. Increase in speculation :-
The shares are transferable and the prices of the shares fluctuate in the stock exchange due to various factors. It increases the speculation which is harmful for the public.

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