Explain any five reasons why a joint stock company is preferable to a one-man business.

Answer Details

A joint stock company is a business owned by many shareholders whose capital is divided into transferable shares and which has a separate legal existence from its owners, while a one-man business (sole proprietorship) is owned and run by a single person. The company is preferable for the following reasons:

1. Limited liability: a shareholder can only lose the amount he invested, and his personal property is safe if the company fails. A sole trader has unlimited liability and can lose personal assets to settle business debts.
2. Larger capital: a company can raise very large sums by issuing shares and debentures to many people, whereas the sole trader is limited to personal savings and small loans.
3. Continuity of existence: because it is a separate legal person, a company continues to exist despite the death, illness or withdrawal of any owner. A one-man business usually collapses on the death of the owner.
4. Economies of scale: the larger size of a company allows it to buy in bulk, use specialised machinery and employ experts, lowering average cost. The small sole trader cannot enjoy these fully.
5. Specialisation and better management: a company can employ skilled managers for different departments (finance, production, marketing), giving more efficient management than one person handling everything.

Any five, well explained, complete the answer.