The company form of organization has been successful in almost all countries of the world. This form is suitable where large resources are required and the production has to be carried out on a large scale. Organizing a business in corporate form allows a company to function independently from the owners of the business. The number of joint-stock companies has shown a phenomenal increase in the twentieth century.
The company form of organization provides the following advantages:
- Huge Amount Of Capital
A company can collect large sum of money from large number of shareholders. A public company can collect huge amount of capital from its unlimited number of shareholders for large- scale enterprises. It enables the company to appoint expert and qualified persons for managing various business functions. There is no limit on the number of shareholders in a public company. If need for more funds arises, the number of shareholders can be increased.
- Limited Liability
The liability of members in a company form of organization is limited to the nominal value of the shares they have acquired. The members or shareholders of a company enjoy the advantage of limited liability. Many persons will be reluctant to invest in those enterprises where liability is unlimited. They can not be called upon to pay anything more than the face value of the shares held by them.
- Permanent Existence
When a company is incorporated, it becomes a separate legal entity. A company has permanent existence. The members of a company may go on changing from time to time but that does not affect the continuity of a company. Its life does not depend on the life of its members. The discontinuation of a company may cause wastage of resources and inconvenience to the consumers.
- Transferability Of Shares
The shares of a public company are freely transferable. In a public company, the shares of a member can easily be transferred without the consent of other members. A shareholder can dispose of his shares at any time when the market conditions are favourable or he is in need of money.
- Democratic Management
In company form of organization, ownership is separate from management. A company management is a democratic in nature, it is managed by elected representatives of its members, which are called ‘directors’ and their group is called ‘Board Of Directors’. The efficient management will help the company to expand and diversify its activities.
- Advantages Of Large Scale Of Business
With the availability of large resources, the company can organize production on a big scale. Generally, a joint stock company is a large scale organization; therefore, it enjoys the advantages of large scale in every area of business. The increase in scale and size of the business will result in economies in production, purchase, marketing and management, etc.
- Transferability of Shares:
The shares of a public company are 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.