1. Formation difficulty - A company's business promotion must be chosen first. Several people ought to promote their businesses. The acceptability of a specific kind of prepared association for incorporating a business. Several legal responsibilities must be fulfilled at the moment of registration. The shares must be sold during that specific period. It costs money and is risky to promote a business.
2. Separation of Ownership and Management - A public company has separate ownership and management. Owners, or shareholders, have little impact on how the business operates. On the other side, those without a stake in the company are in charge. The management might engage in risky business practises. The relationship between effort and rewards is indirect. The company's profits belong to the shareholders, while the board of directors only receives a commission. In contrast to partnerships and sole proprietorships, the management does not personally become involved in the operation of the business.
3. Factory System Ills - The company form of organisation promotes mass production. Joint stock businesses are blamed for the negative effects of the factory system, such as sanitation, air pollution, and urban congestion. Joint stock firms make it easier to create corporate alliances that ultimately result in monopolistic power and consumer abuse.
4. Share Speculation - Joint stock companies promote share speculation at stock exchanges. Both economic and non-economic variables affect share prices. Speculators attempt to change share prices in accordance with their suitability. The growth of sound investment will not be aided by stock exchanges while speculative activity is ongoing. Joint stock company management will occasionally promote share speculation for their own financial advantage.
5. Fraudulent Management - The directors and promoters may engage in dishonest behaviour. Those who haven't made a lot of investments in the company are in charge of management. The Company Law has put out measures to thwart fraudulent practises, but they have not been sufficiently effective to do so.
6. Lack of Secrecy - The management of companies remains in the hands of many persons. In Board of Directors meetings, everything is discussed. Trade secrets cannot be kept a secret. Due to the small number of people involved in management, such concealment is conceivable in cases of sole proprietorship and partnership businesses.
7. Delay in Decision - Making - A policy decision may be made by an organisation or by a single person. All significant choices are made by the Board of Directors or are forwarded to the General Assembly. The process of making decisions takes time. It won't be possible to set up meetings at the last minute if a business opportunity presents itself and a speedy decision is required. Delays in decision-making could result in the loss of a great deal of opportunities.
8. Economic Power Concentration - The firm organisational structure has aided in the concentration of economic power in a select few hands. Some people take on the position of director in several businesses and work to create policies that advance their own objectives. To form subsidiary corporations, shares of other businesses are acquired. The formation of subsidiary firms and the interlocking of directionship have made it easier for a small number of corporate houses to control the majority of the economy.
9. Excessive State Regulations - A large number of
rules and regulations are framed for the working of the companies. The companies will have to follow rules even for their internal working. The government tries to regulate the working of the companies because large public money is involved.
The formalities are many and the penalties for their non-compliance are heavy. This often detracts companies from their main objectives for which they have been formed.
