Q.Explain any four limitations of a joint stock company.

Along with its advantages, the company form also carries costs and constraints that a proprietorship or partnership does not face to the same extent. …

Although the company form offers real advantages, it also has genuine drawbacks that a student of Andhra Pradesh Intermediate commerce should be able to explain, not just list.

1. Difficult and expensive formation: Setting up a company involves drafting the Memorandum and Articles of Association, filing multiple documents with the Registrar of Companies, and paying registration fees and stamp duty. This process takes more time, expertise and money than starting a sole proprietorship, which needs no such formal incorporation.

2. Lack of secrecy: A company must file its audited financial statements, annual returns and various other documents with the Registrar, and most of these become open to public inspection. Competitors can study this information, whereas a sole proprietor or a partnership firm can generally keep its financial affairs confidential.

3. Separation of ownership and control: Because shareholders elect directors to manage the company rather than managing it themselves, there is a risk that management (the 'agents') may act in ways that serve their own interests rather than those of the shareholders (the 'principals') who own the company — a problem often called the principal-agent problem. …

A common error is confusing 'lack of secrecy' with 'lack of privacy for shareholders' — the point being tested is that the COMPANY's own financial informat …