Joint-stock companies are the foundation of any economy’s growth; they are the only private limited company. Therefore, they are essential and have a significant impact on the economy. In this article, we will explain the joint stock company importance.
What is called a joint-stock company?
A joint-stock company is a business owned by its shareholders, with each investor owning a share based on the amount of stock purchased. Joint-stock companies are formed to finance endeavors that would be too costly for an individual or government.
Joint-stock company Importance
Joint-stock companies enable a solid business to form and thrive by bringing many people together. Each shareholder invests in the company and benefits from its operations. Every shareholder owns a portion of the company up to the amount invested. Ownership entails additional benefits.
1.Limited Liability
One of the Joint Stock Company importance is the company’s shareholders’ liability which is limited to the face value of their shares. They are personally liable for the company’s debts. This attracts people to invest in the joint-stock company.
2.Transferability of Shares
Another point for the Joint Stock Company Importance is the transferability of shares that results in investment liquidity. It encourages a large number of people to invest. It also assists a company in gaining access to additional resources.
3.Flow of Risk
A small group of people shares the risk in a sole proprietorship or a partnership. However, because the company has a large number of shareholders, many people share the risk.
4.Social Importance
The company offers the opportunity to mobilize the community’s dispersed savings. It also generates job opportunities. Consumers benefit from lower-cost goods as a result of large-scale production. Society has an adequate supply of goods. Taxation provides revenue to the government.
5.Public confidence
A company has a high level of public confidence. It must publish its audited financial statements. It keeps the general public informed. It is responsible not only to its owners but also to the public and the government. This contributes to the public’s goodwill and reputation.
6.Professional management
Shareholders own a company, but professional managers manage it. These top management are directly accountable to the board of directors. As managers, a company can attract talented and competent persons.
7.Publication of financial statements
A joint-stock company should publish its audited financial statements in a reputable national newspaper once a year. This statement helps in providing the information to the general public and other stakeholders.
8.Capital is divided into shares
The capital of a joint-stock company is divided into numerous parts, each with a different value, and each part of capital is referred to as a share. The general public and the promoters purchase these shares to become shareholders of the company.
9.Large-scale operation
A Joint-stock company has an association with different managerial skills because different members are associated with it. Due to the sufficient capital and competency of the members (directors)joint-stock company has the possibility of a large-scale operation. Hence, a joint-stock company has a large-scale operation.
What are the characteristics of a joint-stock company?
10 Important Characteristics of a Joint Stock Company
- Association of Persons
- Independent Legal Entity
- Limited Liability
- Common Seal
- Transferability of Shares
- Separation of Ownership and Management
- Perpetual Existence
- Corporate Finance
Which company is better private or public?
The primary benefit of a publicly traded company is that it can enter the market by selling more shares. The primary advantage of a privately traded company is that it does not have to answer to any stockholders and does not have to make any disclosures. Companies that are publicly traded are large corporations.
Conclusion
A joint stock company is associated with a variety of people. It has the advantage of having a large capital because each member invests a large amount of capital. When a joint stock company lacks capital, the shares can be sold to the general public. As a result, when shares are issued, huge amounts of capital can be collected.
