When two or more people, with a minimum of seven in the case of a public limited company, establish a company for the purpose of engaging in a lawful business after disclosing their names in the memorandum of association and fulfilling other legal requirements, company incorporation takes place! Company incorporation, in other words, is the legal procedure to establish a company or corporate entity. It involves the process of separating the firm’s assets and income from its owners and investors. Company incorporation explains how it is created legally and brought into existence, writing the article of incorporation and selecting the shareholders are both necessary steps in the incorporation of the company.
Why is it necessary to incorporate company?
You should incorporate a company for :-
- Tax savings
- Liability protection
- Business credibility
- Ease in raising capital
- Perpetual duration
- Transfer of ownership
What are the benefits/advantages of company incorporation?
Let’s look at 10 benefits of company incorporation :-
1. Corporate veil
Incorporation successfully establishes the corporate veil, a protective area of limited liability that safeguards the interests of the company’s shareholders and directors. As a result, incorporated companies can absorb a lot of risks that aid in growth without exposing owners, directors, and shareholders to a lot of financial liabilities beyond their initial investments in the company.
2. Corporate personality
The incorporation of the company aids in the establishment of a legal entity of the company that is independent of and distinct from the stockholders, owners of the company, and partnership firms.
3. Limited liability
The Company Act Section 34(2) states that if a company is shut down, the members are solely liable for the debts. But, the members are legally required to contribute with some nominal share held by the members and have few additional liabilities once the company is established.
4. Perpetual succession
In spite of any owner’s death, bankruptcy, insanity, or transfer of shares to another entity, etc., the company continues to operate. Perpetual succession gives the company immunity.
5. Transferable shares
The shares and other interests of the members are movable property that can be transferred, as stated in Companies Act, Section 82. This gives investors liquidity and generates investment of funds in shares.
6. Separate property
Company’s property is treated as separate property separate from its members. The company, like a real person, controls, manages, and disposes of the property. The shareholders might face criminal charges for misappropriating the company’s funds if they use the company’s property for personal use, according to the law.
7. Capacity to sue
An incorporated company has the right to sue and be sued ( exceptions exist)
8. Flexibility and autonomy
A company that has been incorporated has the autonomy and freedom to establish its own rules and regulations and decide how to carry them out. However, these are constrained by Equity rules, General principles of law and Morality.
9. Elevates company credibility
Companies that have been incorporated are more stable than those that have not. Simply said, adding ‘Inc.’ or ‘ltd’ to the end of the company name adds credibility, stability, and permanence.
10. Additional benefits
One of the main benefits of incorporation is tax benefits. Taxes are levied on a corporation’s profit. To achieve their financial objectives, an incorporated company may additionally deduct salary, health benefits, etc.
Hope this blog was useful for you. Please do not hesitate to get in touch with us at Finaccle, if you require further help. Apart from online company registration in India (such as private limited company registration in Surat), we also render services related to Finance, Accounting, Tax and Legal aspects! Share this blog and follow us on the following platforms to know more!