Outline the merits of a Joint Stock Company.

Answer Details

A joint stock company is a business incorporated as a separate legal person, owned by shareholders whose ownership is divided into shares. Its main merits are:

• Limited liability: a shareholder can lose only the amount invested in shares; personal assets are protected.
• Large capital: by selling shares to many people (and, for a public company, to the general public) the firm can raise very large amounts of capital.
• Separate legal entity: the company can own property, sue and be sued in its own name, independent of its members.
• Continuity of existence (perpetual succession): the death, bankruptcy or withdrawal of a shareholder does not end the company.
• Transferability of shares: shares of a public company can be freely bought and sold, giving investors liquidity.
• Employment of experts: its large size allows it to hire specialists in management, finance and production, improving efficiency.
• Economies of scale: large-scale operation lowers average cost of production.
• Spreading of risk: business risk is shared among many shareholders rather than borne by one person.