Joint stock company advantages and limitations

A joint stock company is a voluntary association of persons that is a separate legal entity, with capital divided into transferable shares and limited liability of members. In Nepal it is formed under the Companies Act, 2063 and may be private or public (for example Nepal Telecom, Nabil Bank).

Advantages

1. Limited liability: A shareholder's liability is limited to the unpaid amount (if any) on their shares, so they can lose at most what they invested or agreed to pay; their personal property is safe.
2. Large capital: Many small investors can contribute, enabling big projects such as hydropower companies.
3. Separate legal entity: The company can own property, sue and be sued in its own name.
4. Perpetual succession: Continues despite death or withdrawal of shareholders.
5. Transferable shares: Public company shares can be bought and sold on NEPSE.
6. Professional management: Experts are hired as directors and managers.
7. Growth and diversification: Easy to expand with new issues of shares and loans.
8. Public confidence: Audit and legal rules increase trust.

Limitations

1. Complex formation: Many legal formalities, costs and documents.
2. Lack of secrecy: Accounts and reports must be published.
3. Separation of ownership and control: Managers may act in their own interest; shareholders are often passive.
4. Delay in decisions: Board and general meeting procedures take time.
5. Heavy regulation and taxes: Must follow the Companies Act, SEBON, Nepal Rastra Bank rules, and pay corporate tax.
6. Speculation and fraud: Insider trading and manipulation can occur.
7. Lack of personal interest: Hired managers may lack the motivation of an owner.
8. Oligarchy: Few directors may dominate.