A company form of enterprise has become very popular not only in India but also outside India especially for industrial and trading operations undertaken on a large scale. This is because of the following advantages enjoyed by the company form of enterprises in comparison to other form of business.
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1. Permanent Existence:
A company enjoys permanent legal existence. It has a separate legal entity quite distinct from its members. The deaths, insanity, insolvency of shareholders do not affect the existence of the company.
The transfer of shares by one person to another also does not stand in the way of its continued existence.
2. Limited Liability:
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Most of the companies are formed as limited liability concerns. The liability of the shareholders of a company is limited to the extent of face value of the shares held by them.
3. Transferability of Shares:
The shares of a public company are freely transferable. The owners of shares do not commit their money for the entire life of the company.
They can easily dispose of their shares when ever they so like. This is the most distinct advantage in case of a company form of business.
4. Financial Advantage:
A company can raise any amount of capital from the general public by issuing shares and debentures provided it is duly approved by the appropriate authority. Thus accumulation of fund is generally not a problem to undertake any large scale operation.
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In fact, where large-scale business is to be undertaken in which huge amount of investment is to be made, company organization is the best method.
5. Better Management:
The management of companies is done by the directors elected by the shareholders. Due to this, shareholders elect only such directors who are experts and posses special knowledge and skill in their respective field so that management of the business may be done with maximum efficiency and ability.
6. Economies of Scale:
Large scale operations result in several advantages to the company as well as the consumers such as economy in purchasing, distribution overhead expenses and others.
As a result the cost of production of goods become minimum leading to higher profit, consumer, enjoys cheaper price leading to higher demand.
7. Ability to cope-up with changing Business Environment:
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Modern business units operate in an uncertain economic, political, social and technological environment.
Continuous changes in the wants and needs of customers, replacement of old machinery by new one, changes in the processes and techniques of manufacture make it compulsory for business units to invest huge recourses in conducting researches in various field connected with business life.
Only large scale business units can afford for such changes.
8. Diffusion on Risk:
In sole trading, all risk are rest with a single individual. In partnership, the risk of business is distributed among the few who are partners.
But contrary to these situations, in case of company the risk is distributed among large number of share holders and as such no body feels the burden of risk.
From the point of view of an investor, this is the specialty with company form at business.
9. Scope of Expansion:
With large amount of capital, a company can expand its business activities as much as its likes. In this way, the company can enjoy all the advantages of conducting business on a large scale.
In fact, there is also a great scope for self-generating growth by reinvestment of the surplus in the same business.
10. Greater Public Confidence:
From the birth to its liquidation, there is full legal control of the activities of a company. Therefore, public has greater confidence in companies than they have in sole trading or partnership.
11. Better use of Economic recourses:
The company organization makes a great contribution in making the best use of the economic recourses of a country. It draws the funds in form of share capital from general public as well as institutional investors.
Institutional investors collect fund from public. Thus fund in small lot are gathered and invested in big projects the project also utilities the material, human resources of the country in more productive ways.
12. Democratic Organization:
As in a democracy the representatives elected by people take up administration for the people, similarly the management of the company is done by the elected board of directors on behalf of and for the shareholders of the company. Thus, the organization of the company is democratic.
13. Social Benefits:
The company form of organization is an effective medium for mobilizing the scattered savings of the community and investing them in different commercial and industrial enterprises.
It is indirectly helping the growth of financial institution like banks, insurance companies etc. by providing avenues for the investing of their funds into shares and debentures.
It offers employment to many people. Further, it produces largest volume of goods and services for the consumers and contributes the major share of revenue of the Government both through direct and indirect taxes. It also takes up many a social activity like education, health, environment, housing and others.
14. Statutory Regulation:
Formation and working of companies are well-regulated by the provisions of the companies Act. The provisions regarding compulsory publication of some documents, accounts, directors, reports etc. create public confidence.
Thus, the law ensures healthy management of the companies in the interests of the share holders and the public.