1. Capital Requirement: Joint-stock companies allow for the pooling of financial resources from a large number of investors, making it possible to raise substantial capital for large-scale projects and ventures.
2. Risk Sharing: By spreading ownership among multiple shareholders, joint-stock companies distribute the risk of business ventures. Investors only risk losing the amount they have invested in the company's shares.
3. Limited Liability: Shareholders in a joint-stock company have limited liability, meaning that their personal assets are protected if the company faces financial difficulties or goes bankrupt. This encourages investment and reduces personal financial risk for shareholders.
4. Transferability of Ownership: Shares in a joint-stock company can be easily bought and sold on stock exchanges, providing shareholders with liquidity and the ability to realize the value of their investments.
5. Professional Management: Joint-stock companies often have professional managers who are experts in their respective fields, ensuring efficient and effective management of the business.
6. Access to Public Funds: Listing on a stock exchange enhances a company's credibility and makes it more attractive to potential investors, giving the company access to public funds and capital markets.
7. Growth Opportunities: Joint-stock companies can raise additional capital through the issuance of new shares, enabling them to expand their operations and pursue growth opportunities.
8. Specialization and Efficiency: Joint-stock companies can attract skilled and specialized individuals as employees, leading to increased efficiency, innovation, and competitive advantage.
Effects of Formation of Joint-Stock Companies:
1. Separation of Ownership and Management: In joint-stock companies, ownership (shareholders) and management (board of directors and executives) are separate, allowing for professional management and decision-making.
2. Increased Accountability and Transparency: To attract investors, joint-stock companies must disclose financial information and adhere to regulatory compliance, leading to increased accountability and transparency.
3. Market Liquidity: Shareholders can trade their shares on stock exchanges, providing liquidity and enabling investors to enter or exit the company's ownership easily.
4. Dividend Payments: Joint-stock companies may distribute a portion of their profits to shareholders as dividends, providing investors with a return on their investment.
5. Risk Diversification: Investors can spread their investments across multiple joint-stock companies, diversifying their risk and maximizing potential returns.
6. Shareholder Influence: Shareholders can exercise their influence through voting rights, electing board members, and participating in key decisions that affect the company's direction and performance.
7. Access to Capital Markets: Listing on a stock exchange allows companies to access a wider pool of investors and raise capital more efficiently, facilitating growth and expansion.
8. Potential for Speculation and Volatility: Stock market trading of shares can lead to speculation and price fluctuations, which may result in short-term volatility in share prices.