Are Joint Stock Companies a Trap for Embezzlement?

Why Do Governments Force Companies to Issue and Sell Shares?

Governments may compel some family-owned businesses to convert into joint stock companies for several key reasons:

• Corporate Expansion: When companies grow too large to be managed solely by family members, requiring a board of directors and experts.

• Heir Disputes: Conflicts among heirs over management and decision-making make shareholding and an elected board preferable.

• Public Interest Sectors: Activities related to infrastructure and healthcare are better managed by public ownership.

• Market Share Distribution: Ensuring market ownership is spread across a broader base to prevent monopolization.

• Government Control: Stronger regulatory authority over joint stock companies compared to family-owned or private firms.

• Revenue Growth: Boosting government income through increased capital from shareholders.

• Wealth Distribution: Spreading wealth across more societal segments.

• Productivity and Employment: Enhancing investment, productivity, and job creation.

  Why Do Companies Resort to Selling Shares in the Market?

  Companies may issue shares for several reasons:

  • Funding Needs: When external financing (e.g., loans) is unavailable or insufficient for expansion.

  • Risk Reduction: Mitigating risks for core owners.

  • Diversification: Owners seeking to diversify their business portfolios.

  • Sustainability: Clear operational protocols in joint stock companies enable structured management.

  • Government Incentives: Access to tax exemptions, loans, or political/security support.

  Factors Affecting the Stock Market and Joint Stock Companies: How Are Shareholders Robbed?

  Factors Influencing the Stock Market:

  • Unpredictable Behavior: Multiple shareholders with conflicting interests.

  • Rumors: Affecting stock prices or company reputation.

  • External Crises: Wars, political instability, natural disasters, or pandemics.

  • Internal Conflicts: Competition over resources within companies.

  How Are Shareholders Robbed?

  Legal Methods:

  • Mergers and Acquisitions: Causing stock price volatility.

  • New Share Issuance: Diluting existing shareholders’ value.

  • Cost Inflation: Excessive spending on assets, salaries, fines, or compensations reduces profit margins.

  Illegal Methods:

  • Fraud: Collecting shareholder funds and disappearing (e.g., Ponzi schemes).

  • Stock Manipulation: Artificially inflating or deflating prices via rumors or insider trading.

  • Embezzlement: Mismanagement by executives, reducing shareholder profits.

  • Insider Trading: Exploiting non-public information for personal gain.

  Which is Better: Bonds or Stocks? And Why?

  Individuals with little experience, those who cannot take risks, or those with limited availability for trading may prefer bonds due to their fixed interest rates and stability. Bonds also provide priority in case of a company’s bankruptcy.

  However, stock market trading offers a unique appeal, often driven by excitement and challenge. To succeed, investors should:

  • Study the market and review current and past financial statements.

  • Diversify investments between bonds, stocks, and different companies.

  • Seek expert consultation from certified professionals or financial portfolio managers.

  Finally, governments and regulatory institutions must ensure transparency by auditing financial statements, monitoring the market regularly, closing legal loopholes, imposing strict penalties, and continuously educating investors.