Merits of Company Form of Organisation
Some of the merits of company form of organisation discussed below:
1. Accumulation of Large Resources- The main drawback of the sole trade and partnership concerns has been the scarcity of resources the resources of a sole trader andnof partners being limited, these enterprises have always suffered for want of funds. A company can collect large sum ofnmoney from large number of shareholders. There is no limitnon the number of shareholders in a public company. If need for more funds arise, the number of shareholders can be increased. Joint stock companies are suitable for those businesses where large resources are required.
2. Limited Liability- The liability of members in a
company form of organisation is limited to the nominal valuenof the shares they have acquired. If a person has purchasedna share of Rs. 100, his liability is limited to Rs. 100 only. If thenshare is partly paid, then he can be required to pay only thenunpaid value of the share. In no case the total payment will exceed Rs. 100. The limited liability encourages many persons to invest in shares of joint stock companies. Many persons will be reluctant to invest in those enterprises wherenliability is unlimited.
3. Continuity of Existence- When a company is incorporated, it becomes a separate legal entity. This is an entity with perpetual succession. The members of a company may go on changing from time to time but that does not affect the continuity of a company. The death or insolvency of members does not in any way affect the corporate existence of the company. The continuity of a company is not only in the interests of the members but is also beneficial for the society The discontinuation of a company may cause wastage of resources and inconvenience to the consumers.
4. Efficient Management- In company form of or-
ganisation, ownership is separate from management. It enables the company to appoint expert and qualified persons for managing various business functions. The availability of large-scale resources enables the company to attract talented persons by offering them higher salaries and better career opportunities. The efficient management will help the company to expand and diversify its activities.
5. Economics of Large Scale Production- With the
availability of large resources, the company can organise production on a big scale. The increase in scale and size of the business will result in economics in production, purchase, marketing and management, etc. These economics will enable the company to produce goods at a lower cost, thus resulting in more profits. The company will help consumers by providing them with cheaper goods and will also be able to accumulate more resources for further expansion.
6. Transferability of Shares- The shares of a public company arc freely transferable. A shareholder can dispose of his shares at any time when the market conditions are favourable or he is in need of money. The company does not return share-money before its winding up but shareholders can easily sell their shares through stock exchange markets.Stock Exchange provides a ready market for the purchase and. sale of shares. The facility of transferring shares encouragesnmany persons to invest. This provides liquidity to the investor and stability to the company.
7. Ability to Cope with Changing Business Environments- The present business enterprises operate under uncertain economic and technological environments. Technological changes are taking place every day. The needs of consumers are varied and changing, to cope with the changing economic environment every business is required to invest money on research and developmental programmes.
Sole trade concern or partnership firms cannot afford to spend money on research work. Joint stock companies can afford to invest money on research projects. It will enable them to cope with changing business conditions.
8. Diffused Risk- In sole trade and in partnership
business, the risk is shared by a small number of persons.
Further uncertainties discourage them from taking up new ventures for fear of risk. In company form of organisation, the number of contributories, is large; so risk is shared by a large number of persons. The burden to be shared by different individuals becomes insignificant. It enables companies to take up new ventures.
9. Democratic Set-up- The values of shares is generally small. It enables persons with low incomes to purchase the shares of companies. Shareholders’ come from all walks of life Every individual has an opportunity to become a shareholder. Secondly, the Board of Directors is elected by the members. The company form of organisation is democratic both from ownership and management side.
10. Social Benefits- The company form of organisation mobilises scattered savings of the community. These savings can be better used for productive purposes. companies also enable financial institutions to invest their money by providing them avenues. It also enables the utili-
sation of natural resources for better productive uses society is supplied with enough quantity of goods.