🔥🔥🔥 Advantages And Disadvantages Of Joint Venture

Tuesday, August 03, 2021 1:43:29 AM

Advantages And Disadvantages Of Joint Venture



It can raise the required resources and also advantages and disadvantages of joint venture talented advantages and disadvantages of joint venture to manage the expansion. Sometimes, even the directors of a company also indulge in speculation of shares of Personal Narrative: My Father Mike Tyson company for speculative purposes and personal advantages and disadvantages of joint venture. Even advantages and disadvantages of joint venture with limited financial resources can participate advantages and disadvantages of joint venture creation and operation of large advantages and disadvantages of joint venture. In conditions of recession, although the production comes down, the expenses remain the same. The Board of Directors enjoys very wide powers of management. This kind of Radiotherapy Research Paper is difficult to advantages and disadvantages of joint venture in other forms of organization.

What is a Joint Venture?

Their accounts are audited by a chartered accountant and are to be published. This creates confidence in the public about the functioning of the company. Transferability of Shares- The shareholders of a public company are entitled to transfer the shares held by them to others. The shares of most joint stock companies are listed on the stock exchange and hence can be easily sold. Professional Management- The management of a company vests in the directors duly elected by shareholders.

Normally, experienced persons are elected as directors. Thus, the available skill is utilized for the benefit of the company. The company organisation, therefore, is like a bridge between the skill and capital. Tax Benefits- Company pays lower tax on a higher income. This is because of the reason that the company pays tax on the flat rates. Similarly, company gets some tax concessions if it establishes itself in a backward area. Risk Diffused- The membership of a company is large. The business risk is divided among several members of the company. This encourages investment of small investors.

Difficulty in formation- The legal formalities and procedures required in the formation of a company are many. It has to approach large number of people for its capital and it cannot commence business, unless it has obtained a certificate of incorporation and a certificate to commence business. Lack of Secrecy- Every issue is discussed in the meeting of the board of directors. In this situation maintenance of secrecy is difficult. Delay in Decision Making- In company form of organisation, all important decisions are taken by the board of directors and shareholders in general meeting. Hence, decision making process is time consuming. Board of directors itself has often to be at the mercy of bureaucracy. Concentration of Economic Power- The company form of organisation gives scope for concentration of economic power in a few hands.

It gives easy scope for the formation of combinations which results in monopoly. Large joint stock companies tend to form themselves into combinations or associations exercising monopolistic power which may prove detrimental to other firms in the same line or to the consumers. Lack of Personal Interest- In company form of organisation, the day-to-day management is vested with the salaried persons or executives who do not have any personal interest in the company. This may lead to reduced employee motivation and result in inefficiency.

More Government Restrictions- The internal working of the company is subject to statutory restrictions regarding meeting, voting, audit, etc. The establishment and running of a company, therefore, would prove to be troublesome and burdensome because of complicated legal regulations. Incapable and Unscrupulous Management- Unscrupulous individuals may bring economic ruin to the community by promoting bogus companies. The fraudulent promoters may be fool the public to collect capital and misuse it for their personal gain. Misuse of property, goods and money by the managerial personnel may harm the interests of the shareholders and create panic among the investing public.

Undue Speculation in the Shares of the Company- Illegitimate speculation in the values of shares of a company listed on the stock exchange is injurious to the interest of shareholders. Violent fluctuations in the values of shares as a result of gambling on the stock exchange, weakens the confidence of investors and may lead to financial crisis. They are not personally liable. This reduces the degree of risk borne by an investor. Member may come and go, but the company goes on forever. It will only cease to exist only when specific procedure of winding up is followed. Thus there is greater scope for expansion. The investors are inclined to invest in shares because of the limited liability, transferable ownership and possibility of high returns in a company.

Limitations :. Such information is available to the general public also. As a result, it is difficult to maintain complete secrecy about the operations of company. All this process is time consuming and expensive and reduces the freedom of operations. They adopt various means to get themselves re-elected as directors year after year. Interests of shareholders are overlooked. For example, the employees may be interested in higher salaries, consumers desire higher quality products at lower prices, and the shareholders want higher returns in the form of dividends and increase in the intrinsic value of their shares. These demands pose problems in managing the company as it often becomes difficult to satisfy such diverse interests. Limited liability of shareholders — The liability of shareholders being limited, they willingly invest their funds in the business of the company.

The principle of limited liability encourages the people to invest their savings in a company. Limited liability has gone a long way in popularizing the company form of organisation all over the world. Large financial resources — By dividing its ownership into shares of small denominations, the company can attract large amount of capital from thousands of individuals. Scope for business expansion — With the availability of funds, expert administrators and talented managers, there is good scope for expansion of business of a company. Transferability of shares — The members of a public company is free to transfer their shares.

Efficiency of management — The advantage occurs to a company because of its large size and resources. A large company is able to employ professionals in various functional areas of management who contribute to the efficiency of management. Diffused risk — The risk of loss in a company is spread over a large number of members. Therefore, the risk of an individual investor is reduced. Stability — The company form of organisation has a separate legal entity having perpetual succession. Its continuity is not affected by death, insolvency or insanity of its individual members or even Directors. Difficulty of formation- The formation of a company is a long drawn process and numerous legal formalities and money are involved in this.

Excessive regulation by law — Since inception till liquidation a company is strictly regulated by law. Numerous legal formalities involved in matters relating to allotment of shares, filing of various Returns, documents, etc. Lack of motivation and personal touch — Since there is a separation of ownership and management, the Managers of a company do not tend to take as much personal interest in business as a proprietor or partner would do.

Oligarchic control — A company is owned by a large number of shareholders but it is managed by a few representatives who are elected to the Board of Directors. The Board of Directors enjoys very wide powers of management. It is the final decision-making authority on vital issues concerning business. This leads to concentration of power in a few hands. Conflict of interests — There is always a possibility of conflict of interests of different groups in a company such as management and workers, the Board and shareholders and so on. Speculation — Since the shares of a company are freely transferable, people are tempted to speculate in the prices of these shares.

Reckless speculation has, therefore, been encouraged by the formation of Joint Stock Companies. Delayed action — A company moves very slowly after the agreement of all diverse interests. It is very much unsuited to those lines of activity where prompt and quick decisions are essential for success. It is also less elastic or less adaptable as compared to proprietary firms. Absence of secrecy — A joint stock form of business organisation cannot easily preserve secrets.

Social evils — From social point of view, the company can be held responsible for such evils as corruption in public life, concentration of wealth in a few hands and lack of industrial peace, etc. As compared to sole proprietorships and partnership firm, a joint stock company can accumulate huge amount of funds. It facilitates the mobilization of savings of millions for the productive purposes. Since its capital is divided into share of small value, even an ordinary investor can contribute to its capital. In addition to this, easy marketability of corporate securities has further attracted investment from all types of investor.

Thus rich and poor, enterprising and conservative, careful and cautions persons can all take part in the financing of large industrial originations requiring huge amount of capital. There is a separation of ownership and management in case of Joint Stock Company. This promotes efficiency of management, because a band of experts can definitely take balanced decisions and can direct the affairs of the company in the best possible way. High efficiency in the management and control of industries which is possible in case of company only, is useful for the entire country. The liability of a shareholder of a company is limited to the face value of the share owned by him.

In case of partly paid share, he can be required to pay only the unpaid value of the share. Thus, the shareholder knows in advance the maximum amount of risk that may have to be incurred. Since the personal property of a shareholder cannot be attached to the debts of the company, it gives additional satisfaction to him while making investment in the company. Thus, the advantage of limited liability encourages many investors to invest in shares of joint stock companies.

The shareholders of a public company are free to transfer their share as and when liked by them. Stock exchange provides ready market for the purchase and sale of shares. The facility of tendering share provides liquidity to the investment of an investor and stability to company. It helps a company in tapping more resources. Future uncertainness discourages them from taking up new venture for fear of risk. On the other hand, in case of a company, the burden of risk falls on a large number of shareholders. This also attracts many investors.

The rich feel secured and the poor are not unduly burdened. Moreover, the companies can take up new venture fearlessly. Thus, the life of a company is not dependent upon certain individuals and it continues to exist irrespective of death, insolvency or lunacy of its members including directors; any change in its owners or director does not affect as survival. The stability of a business organization is important not only for its owners but for its employees, consumer and society at large also. The compulsory publication of some documents, accounts, director report etc. Besides this, constant supervision and regulation of a company by the Government through various legislation further, adds to public confidence.

A company has potentialities to build a vast empire by expanding its business operations. This is made possible by large amount of financial resource and skilled management available to the company. The economies of scale help in reducing cost of production and, thus help in increasing profitability and providing a sound financial base for growth. The company form of organization is an effective medium of mobilizing the scatter savings of the community and investing them for different commercial pursuits.

A company, unlike sole proprietorship and partnership, has reduced tax burden at higher levels of income. Further the joint stock companies enjoy several tax incentives resulting in a considerable reduction in the actual tax base. Unlike a sole proprietorship and partnership, a joint stock company is not easy to form. It has to go through many formalities both at the time of formation and in the course of operation. These create difficulties and involve expense. Thus, the irksome formalities and heavy cost involved in the process of formation discourage the formation of new companies.

The activities of a joint stock company are regulated by State much more closely than those of a sole proprietorship and a partnership firm. The excessive regulations are made with a view to protect the interest of the shareholders and the public; but in practice, they put obstacles in their normal and effective working. On the other hand, in case of a joint stock company, all the owners do not take part in its management and there is virtual divorce between ownership and management.

It is managed by professional managers appointed by board of directors who do not have much stake in the company. There is no direct relationship between efforts and rewards. The profits belong to shareholders; and the Board of Directors is given only a commission. In most of the cases the owners of the company are divested of the power of control and an inner ring of shareholders manipulates the voting power to have its hold on the company. Year after year, the same group of handful of shareholders manages to get it elected on the Board of Directors and tries to exploit the majority. Thus, it does not promote the interest of the shareholders in general.

With a view to provide marketability, the shares of public limited companies are listed on the stock exchange. The prices of shares depend on economic and non-economic factors. In practice, the speculators try to fluctuate the prices of shares according to their suitability. These artificial fluctuations of prices of shares have a harmful reaction on the companies and faith of the people may be lost. Sometimes, even the directors of a company also indulge in speculation of shares of the company for speculative purposes and personal gain. The bigger the company the greater is the conflict. It is really difficult to satisfy such diverse interests. In sole proprietorship, there is hardly any scope for such conflict and, in partnership, such conflict may ultimately bring an end to the business; but in company it continues causing unhealthy rivalry, tension and unrest.

All the important decisions are taken either by the Board of Directors or by the general body of shareholders. Calling the meetings of the Board or of the shareholders is time-consuming. It becomes difficult to decide quickly and act promptly; consequently, the opportunities for profit may be lost due to delay in decision-making. The unscrupulous promoters may befool the public by putting an attractive prospectus before them.

They may associate high-sounding names and give a rosy picture about the future of the company and in this way; innocent and ignorant investor may be trapped. In the management of companies, the directors, the officers and other administrative personnel may try to make personal gains at the cost of members. Misuse of company funds and property in personal interest may harm the interests of the shareholders and create panic among the investing public. The company law has devised methods to check such fraudulent practices; but they have not proved enough to check them completely.

A public limited company has to circulate its accounts and annual reports among the shareholders and keep open some of its books for public inspection. This leads to lack of secrecy. In the management of companies, many persons are involved; therefore, it becomes difficult to maintain trade secrets. In case of sole proprietorship and partnership concerns, such secrecy is possible because a few persons are involved in the management. From social point of view, a company form of organization is considered undesirable for the following reasons:. Due to this, prices of its shares fluctuate artificially which goes against the interests of the company and discourages fresh investment in companies. The oligarchy is harmful for the general body of shareholders.

If the management and control of a company is in right hands, no form of organization can be parallel to it. The ideal applications of a company form of organization are:. The liability of shareholder is limited to the extent to which he has committed to contribute to the capital of the company. Thus there is no risk of all the assets of the person being lost because of a single mistake. This allows even small investors to invest in businesses as they know that they can make potentially high profits but their downside risk of loss is limited.

They cannot lose more than what they have invested. A Joint Stock Company form of organization alone is suitable for businesses requiring huge capital. Refineries, Power Generation, Car manufacturing, etc. No other form of business is suitable as a small group of people cannot raise so much of capital. A Joint Stock Company can raise large amounts of capital by approaching the general public for money. Such activity of raising money from the public is called Public Issue. Large projects are often funded by Joint Stock companies through the Public Issue route. The amount of money a person or company can borrow is directly proportional to the amount of capital invested.

For example, if a businessman invests Rs. However, if he wants a loan of Rs. Thus, the amount of money that a business can borrow depends on the capital invested by its owners. Since the amount of capital raised by a Joint Stock Company is greater, the amount that can be borrowed is also greater. Thus, large, capital intensive projects can be taken up only through the Joint Stock Company form of organization.

One of the reasons we save and invest money is that our money should be available to us in times of our need. A sole proprietor who has invested his money in his business will not be able to pull it back in case of personal need, as this is equivalent to closing down of the business. The operations or legal status of the company does not change on account of such transfer. Similarly, any person can become a member of a company any time by buying the required number shares.

Unlike a Proprietary or Partnership concern, the scale of operations of a Joint Stock Company is large. Therefore, the company is able to reap the benefits of large-scale production. The company is able to buy material at relatively lower prices as it buys in huge quantities. Cost of production per unit is lower. Economies of scale result in lower costs, which in turn result in greater sales or higher profits. A Joint Stock Company and its business is unaffected by the death, insolvency or insanity of either shareholders or managers. It enjoys greater stability and hence can do better business. Ltd, which publishes the Times of India newspaper is a year old company.

ITC was incorporated in the year It is a year old company. It is expected to continue its operations in future also. The CEO, directors and shareholders may change, but the company remains in existence. A foreign direct investor might purchase a company in the target country by means of a merger or acquisition, setting up a new venture or expanding the operations of an existing one. Other forms of FDI include the acquisition of shares in an associated enterprise, the incorporation of a wholly owned company or subsidiary and participation in an equity joint venture across international boundaries.

If you are planning to engage in this kind of venture, you should determine first if it provides you and the society with maximum benefits. One good way to do this is evaluating its advantages and disadvantages. Economic Development Stimulation. Easy International Trade. Commonly, a country has its own import tariff, and this is one of the reasons why trading with it is quite difficult. Also, there are industries that usually require their presence in the international markets to ensure their sales and goals will be completely met. With FDI, all these will be made easier. Employment and Economic Boost.

Foreign direct investment creates new jobs, as investors build new companies in the target country, create new opportunities. This leads to an increase in income and more buying power to the people, which in turn leads to an economic boost. Development of Human Capital Resources. One big advantage brought about by FDI is the development of human capital resources, which is also often understated as it is not immediately apparent.

Human capital is the competence and knowledge of those able to perform labor, more known to us as the workforce. The attributes gained by training and sharing experience would increase the education and overall human capital of a country. Its resource is not a tangible asset that is owned by companies, but instead something that is on loan. With this in mind, a country with FDI can benefit greatly by developing its human resources while maintaining ownership. Tax Incentives. Parent enterprises would also provide foreign direct investment to get additional expertise, technology and products. As the foreign investor, you can receive tax incentives that will be highly useful in your selected field of business. Resource Transfer. Foreign direct investment will allow resource transfer and other exchanges of knowledge, where various countries are given access to new technologies and skills.

Reduced Disparity Between Revenues and Costs. Foreign direct investment can reduce the disparity between revenues and costs. With such, countries will be able to make sure that production costs will be the same and can be sold easily. Increased Productivity. Increment in Income.

It can raise the required resources and also advantages and disadvantages of joint venture talented professionals to manage One Flew Over The Cuckoos Nest Mental Institution Analysis expansion. Economies of Scale- Democracy In England Essay the company operates on a large scale, it advantages and disadvantages of joint venture result in the realisation advantages and disadvantages of joint venture economies in purchases, management, distribution or selling. In sole proprietorship, there is hardly any scope for such conflict and, in partnership, such conflict may ultimately bring an advantages and disadvantages of joint venture to advantages and disadvantages of joint venture business; but in company it continues causing unhealthy rivalry, advantages and disadvantages of joint venture and advantages and disadvantages of joint venture. However, we have few and far in between. Those who have capability get requisite funding and Lab Report: Citrobacter Aerogenes, Staphyloccus able to execute their ideas.