Forms of Business Organisation-2 — OCM STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceOCMForms of Business Organisation-25 Marks
Question
State main limitations of the Company.
✓
Answer
Introduction :
Company form has played vital role for economic growth and development of a nation.
There is no doubt about it. But society and members have to suffer financially; the Board of Directors is not honest and faithful.
Limitations (disadvantages) of the Company Form : They are as below :
Lengthy and Expensive Establishment Procedure :
For establishment of the company and to obtain certificate of incorporation, documents like memorandum of association and articles of association are to be presented before the registrar of company.
For this, experts are to be paid their fees.
Compare to individual proprietorship and partnership firm the establishment process of company is expensive. Registration fees too is to be paid.
Legal Restrictions :
According to Companies Act existing company has to follow all the an provision rules and of Company Act very strictly.
Periodically registers to, reports, the account of the company are to be presented before company registrar.
Besides, it has follow the provision Security Exchange Board of India (SEB1).
Increases Administrative Expenses:
Compare to other forms of business, experts are paid very high fees, attractive salary to special officers, money spent for research and development increases expenses.
Less Flexibility :
Resolution is to be passed in general meeting for important changes.
In specific cases consent of the central government and court is required.
That is why compare to individual proprietorship and partnership form, company form is less flexible.
Difficult to Maintain Secret
As per Companies Act, company has to get the annual accounts audited and send it to the registrar of a company and to the shareholders.
Moreover, Information regarding buy back of debenture, issuing bonus shares etc. is to be published.
It is quite difficult to maintain secret in company form.
Autocratic Management :
Voting right is based on number of shares.
Those who hold more shares, form a group and controls the management of a company and manages the company in their own way.
Confidential information and assets are used for personal interest.
Which leads to automatic administration.
Delay in policy based Decision :
Policy decisions are taken in meeting in company form.
Prior to fixed date of meeting notice is sent. Resolutions are passed with majority.
Entire procedure is lengthy and it takes time for decision.
Encouragement to Speculation :
The management of company knows the confidential things about company.
They create artificial changes and encourage speculation in share market.
This harms financial interest of investors.
Disadvantage to the Society :
Capital is more important than human being in a company form.
As a result, there is unequal distribution of wealth and income in society.
Society suffers because of workers strike, lock-out etc. Monopoly enters society.
Conclusion :
There are many advantages of company form yet it is not free from limitations.
Many companies have come to end due to inefficiency and mismanagement.
As a result, employees have lost their jobs, and shareholders have lost their money.
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