Introduction To Business Administration: BS Mathematics

Muhammad Zeshan Ayub
Assistant Manager Academics

MBA (Finance) From Comsats, Islamabad
MS International Business from University of Bedfordshire UK
Introduction to Business Administration

BS Mathematics
Chapter No. 2
Forms of Private Ownership of Business

Disadvantages of Joint Stock Company
Following are demerits of joint stock companies.
1. Complicated Formation:
Formation of a joint stock company is a complicated legal process. Preparation
of legal documents necessary for formation of a company, its registration and
compliance of number of legal formalities before commencement of business
is a complicated process. It requires services, of experts and a long time.
2. Heavy Expenses of Formation:
Formation of a company involves heavy expenditure. These expenses include:
fees payable to government, expenses of preparation and publication legal
documents of the company, expenses of issuing shares, fees of experts
connected with the formation, remuneration of the promoters etc.
3. Excessive Legal Formalities:
Law provides a number of legal formalities that must be fulfilled by a company
during the course of its operations. These formalities include maintenance of
record of shareholders, compulsory audit, publication of annual accounts,
submission of various reports etc. Although these legal formalities are necessary
for proper working, of companies yet these legal formalities are significant
addition
4. Higher Taxes:
A company is-itself a person. As such, it is required to pay income tax on its
earning. Rate of income tax for companies is higher than the rate for individuals.
Shareholders receive dividend out of the after tax income. Shareholders are also
required to pay income tax on their income from dividend. In this way, income of
a company is taxed at a higher rate and it is taxed twice.
6. Inflexible Operations:
Various businesses that a company can do are stated in object clause of its
memorandum of association. If a company wants to avail an opportunity in a
business not stated in the object clause, it needs an amendment in the
memorandum. Amendment in the memorandum is a lengthy process
prescribed by law.
7. Lack of Secrecy:
It is necessary for companies to provide to their members, to S.E.C.P. and to
stock exchange annual financial statements and other information as required
by law. Consequently, financial information of a company is available to all
competitors, by making deep analysis of the financial statements may discover
such facts about the company which should be kept secret.
8. Separation of Ownership and Management:
A company is owned by stockholders who are neither directors nor managers
of the company. Of course, directors are shareholders but proportion of their
stake in the company is not as high and significant as that of partners or a
proprietor. This separation of ownership and may result in lack of personal
interest, inefficiency and waste.
9. Delay in Decision Making:
A company cannot make many important decisions as freely and quickly as a
proprietorship or a partnership can do. Some decisions require approval of
board of directors and some other require approval of general body of
shareholders. Procedural problems may cause considerable delay in making
such decisions.
10. Concentration of Economic Power:
Company form of business ownership has worked as a tool in creating
concentration of economic power. Firstly, on account of their greater
resources and superior managerial abilities big companies pose serious threat
to survival of small competitors. Secondly, big companies by buying more
than fifty percent shares of small competing companies may obtain
controlling position. Thus they may eliminate the competition necessary for
healthy growth of market.
Difference Between Partnership And Company
Partnership Company
1. Legislation The Partnership Act 1932 applies to The Companies Ordinance 1984 applies to
partnerships. companies.
2. Legal Entity. A partnership is not-a legal entity. A company is a legal entity separate from its
Partners do various acts of the firm in members. A company deals in its own name
their own names. through its agents.
3, Formation. A partnership is formed by an The company is formed by following the

agreement among the partners. The legal procedure prescribed by the
agreement need not necessarily be in Companies Ordinance 1984.
writing.
4.Maximum Members. Number of partners in a firm. cannot There is no limit on the maximum number.
be more than twenty. There may be as many stockholders as the
number of stocks.
Partnership Company
5. Liability. Liability of partners is unlimited. They are Liability of stockholders- is limited. They are not
personally liable for debts of the firm. personally liable for debts of the company.
6. Agency Relationship. In matters connected with the firm, Shareholders are not agents of the' company and
every partner is an agent of the firm. In there is no agency relationship between them.
other words, there exists mutual agency
between the partners.
7. Capital. Partners can contribute as much capital Maximum amount of capital that a company can
as they agree. If need for additional raise is stated in the memorandum. It is termed as
capital arises, they can contribute it as authorized capital. If a company wants to raise
per agreement among them. Similarly if capital more than its authorized capital, it requires
they want to withdraw their capital from an amendment in the memorandum involving a
thy.' firm, they can do so by mutual prescribed legal process. Similarly capital once
agreement. Such changes in capital do contributed cannot be altered without following a
not involve any legal formality. prescribed legal procedure.
Partnership Company
8. Sharing of Profit. Profit sharing ratio among partners of a Share of profit of each shareholder depends on
firm depends on agreement among them. number of shares held by him.
9. Management. Every partner has the right to participate Stockholders of a company cannot participate
in management of affairs of the firm. in its management. They elect directors from
among themselves. The directors manage the
affairs.
10. Transfer of Ownership. A partner cannot transfer his share in the A shareholder can transfer his share to anyone
firm to any other person without consent at any time without consulting Other
of all the other partners. shareholders.
Partnership Company
11. Flexibility of Operations. A firm can engage itself in any business A company can do only that business which is
which is mutually agreed by the partners. stated in its memorandum.
12. Continuity of Existence. Life of a partnership is limited. A firm may A company enjoys perpetual succession.
be dissolved due to a disagreement Existence of a company is not affected by
among 'the partners. Death, retirement, anything that may happen to its stockholders.
incapacity or insolvency of a partner may
also cause dissolution of the firm.
13. Books. There is no legal necessity to maintain A company must maintain books of accounts
books of accounts or any other books, as well as some other books as prescribed by
though usually they are maintained. law.
Partnership Company
14. Audit. Audit of accounts by a qualified Audit of accounts by a qualified

external auditor is not a legal necessity. external auditor is a legal necessity.
15. Dissolution. Various modes of dissolution of Various modes of winding up of a

partnership as provided by the company as provided by the
Partnership Act 1932 include: (i) Companies Ordinance 1984 include: (i)
dissolution by agreement, (ii) winding up by court, (ii) members
compulsory dissolution, (iii) contingent voluntary winding LIP, (iii) creditors
dissolution, (iv) dissolution by .notice, voluntary winding up, and (iv)
and (v) dissolution by court. voluntary winding up under the
supervision of court.

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Muhammad Zeshan Ayub

Assistant Manager Academics

Introduction to Business Administration

Forms of Private Ownership of Business

3, Formation. A partnership is formed by an The company is formed by following the

14. Audit. Audit of accounts by a qualified Audit of accounts by a qualified

15. Dissolution. Various modes of dissolution of Various modes of winding up of a

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