Question

In reference to small business and entrepreneurship: Please respond to the following prompt with a typed 500 word response. Advantages and Disadvantages of going Public

Answer 1

When a small business intends to go Public, it may possibly think of a Joint-stock Company. The following are the advantages and disadvantages of the Joint-stock company when going Public.

Introduction:

A joint-stock company is an association of several members who come together by contributing funds into the company or buy equivalent quantity to shares in appropriation to the money so required by the business and thereby sharing the profits and losses of the business. A Company is an artificial person created by law and hence under the court of law, a Company has a separate legal identity distinctive from its members. The liabilities of the Company are generally limited to the face value of the shares held by the shareholders/members.

Advantages:

The advantages of this type of Company are that it can accumulate larger resources as the company can collect a considerable amount of funds from the Public. The liability of the members is limited. There is a bigger possibility of business continuity and efficient management as the ownership is separate from the management so it enables the Company to employ the experts who could manage the business more efficiently in exchange of high salaries. The economies of large scale production could be achieved. There is a provision for transferability of shares and hence potential shareholders may invest into the company and quit the same by transferring their shares to anyone else who is willing to pump in money into such a business. There is an ability to cope with changing business environments more efficiently than in any other forms of organization and the risks could also be diffused as the number of contributories is large. The set-up is also democratic in nature with all the shareholders having rights to participate in the decision making process of the company affairs.

Disadvantages:

However, the disadvantages are that there is difficulty in formation with loads of legal formalities in the picture. There is a separation of ownership and management so the shareholders role as such may perhaps be insignificant as they are separate from the management of the regular affairs of the company. Further, it could lead to the evils of factory system in an aggressive view to achieve economies of large scale production such as pollution, unhygienic conditions, exploitation of workers, etc. It gives rise to high speculation of shares in the stock exchanges. There are possibilities of a fraudulent management as the shareholders may not possibly preside over every activity of the business in spite them being the owners of the Company. There is lack or secrecy and delay in decision making as well due to various members involved in the picture. There is higher concentration of economic powers in fewer hands and excessive state regulations framed for running the activities of this form of ownership.