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Question
Write short answer of the following.
State demerits of Joint Stock company.
Solution
The following are the demerits of a joint stock company:
i. Complexity information: Formation of a joint stock company requires a large number of procedures and formalities. The legal procedures involved in the formation are not only lengthy but also expensive.
ii. Lack of secrecy: A joint stock company must submit the information about its operations to the Registrar of Companies. This makes it difficult for companies to maintain secrecy.
iii. Impersonal work environment: In a joint stock company, management and ownership are separate. In addition to this, the compensation of the management is not directly affected by the profits of the company. This leads to lack of efficiency on part of the managers.
iv. High degree of regulations: A joint stock company needs to follow certain legal formalities like auditing of accounts, filing of reports and documents and voting. These legal provisions make it difficult for the company to operate freely.
v. Delay in decision making: The board of directors and other executives manage the company. Sometimes, because of so many levels of management, decision making is delayed.
vi. Difficulty in winding up: The procedure of winding up a company is complex and cumbersome
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