Merits of a Joint Stock Company

The joint stock company form of organisation has become the dominant vehicle for large-scale business precisely because of the following advantages it offers over a sole proprietorship or a partnership.

1. Large capital-raising capacity. By dividing its total capital into a very large number of small, affordable shares, a public company can draw savings from thousands, even millions, of small investors spread across the country — a scale of capital-raising that no sole proprietor or ordinary partnership firm could match on its own.

2. Limited liability attracts investors. Because a shareholder's risk is capped at the amount invested in their shares, many people who would otherwise be unwilling to risk their personal property in a business are willing to invest in a company's shares. This willingness to invest, in turn, widens the pool of capital available to the company.

3. Perpetual existence and stability. Since the company's life is independent of the lives of its members, a company can plan for the long term, take on long-duration projects, and build lasting institutional relationships with customers, suppliers, and lenders — something a business tied to the life of one owner or a small set of partners finds harder to do.

4. Professional and efficient management. A large company is typically managed by a Board of Directors, who may bring in professional managers and specialists to run its various departments, rather than relying only on the skills of the original owners. This division between ownership and (professional) management can bring greater efficiency and expertise into the running of the business. …