Benefits and Drawbacks of Company Incorporation

A collection of people who have a common goal and are affiliated with one another might be referred to as a company in the broadest sense. According to section 2(20) of the Companies Act of 2013, a "company incorporated under the Companies Act of 2013 or any earlier company law" is what the term "company" means in a legal sense. The phrase does not further explore the meaning, nature, or qualities of the corporation; it just emphasizes its registration and establishment. The legal definition of "company" is therefore "any association, under the 2013 Companies Act or any earlier Companies Act, must be designated as a company." It is not a mythical figure, contrary to popular belief. Once it is registered, it becomes a legal entity recognized by law with identical rights and obligations to those of a natural person. According to the ruling, a business can be held accountable for a statutory breach just like an individual, but it cannot be put behind bars. Therefore, according to the Companies Act, any infraction results in a fine rather than the firm being imprisoned. In this blog, we discuss the different benefits and drawbacks of incorporating a business. For assistance or free consultation and guidance, you can also contact a LegalRaasta advisor for Company Registration in Delhi.

Benefits of Company Registration in India

  • Establishes a Different Legal Entity: According to this, even though a specific member controls the majority of the business's shares, the company is autonomous and distinct from its members. Therefore, the question was whether a shareholder or controller may be made personally accountable for a company's debt in addition to the capital contribution, regardless of the company's separate legal character.
  • Company has Perpetual Succession: Perpetual succession refers to an organization's ongoing existence, which means that it will continue to exist even after its members pass away. According to the Companies Act of 2013, a company's members may come and depart, but this has no bearing on the legal identity of the company. The corporation only ends when it is legally wound up.
  • Can own Separate Property: Since a corporation is considered to be a separate legal entity under the law, it is allowed to possess property in its own name without the members being able to claim ownership. Additionally, he personally insured the company's asset of lumber, which was lost in a fire.
  • Ability to sue and be sued: The business has the legal authority to file a lawsuit on its own behalf or to be sued by another party. Even if a company can be sued or sued in its own name, it must be represented by a natural person. Any complaint that is not represented by a natural person is subject to dismissal in the same manner as an individual complaint when the complainant is not present for Company Registration in India.
  • Capital is made simpler: Access to capital is made simpler for corporations because they can issue stock instead of debt. Another incentive to incorporate, for instance, is if you need a bank loan; in most circumstances, banks prefer and make it easier to give money to incorporated business enterprises.

Disadvantages of registering a company in India

  • Cost: The initial cost of incorporation consists of the filing fee for your articles of incorporation, any prospective legal or accounting expenses, or the cost of hiring a service to help you complete and file the paperwork. A corporation must pay continuous fees to be maintained.
  • Double Taxation: There is a chance that some corporate structures, like a Corporation, will lead to "double taxation." When a business is taxed twice—once on profits and once on dividends given to shareholders—it is said to be subject to double taxation.
  • Loss of Personal "Ownership": If a corporation is a stock corporation, just a portion of the entity is still in the control of a single person. A board of directors is in charge of the corporation; they are chosen by the shareholders.
  • Required Structure: When establishing a corporation, you must adhere to all regulations set forth by the state in which you filed. This comprises the organization's administration, its operational needs, and its accounting procedures.
  • Ongoing Paperwork: Annual reports on the company's financial status must be filed by most corporations. Tax returns, accounting records, meeting minutes, and any other licenses and permits necessary for operating business are all part of the continuous paperwork for Company Registration in India.
  • Perpetual existence: Perpetual existence is a benefit of incorporation, but it can also be a drawback because it can take a lot of time and money to fulfil the necessary steps for dissolution.
  • Lifting of the Corporate Veil: The "Veil of incorporation" is the name given to this concept. In general, courts view this concept as binding upon them. This Principle has the result of creating a fictitious barrier between the corporation and its customers. In other words, the corporation has a personality all its own that is different from its employees. However, in a variety of situations, the Court will pierce the corporate veil or will disregard the corporate veil in order to uncover the true form and character of the relevant corporation or to contact the person concealed behind the veil. The justification for this is possibly that the law forbids the corporation structure from being abused or misused. When the Court believes that the corporate form is being abused, it will pierce the corporate veil and reveal the true nature and character of the corporation.
  Conclusion Entrepreneurship is currently a hot topic, and when deciding on a company model, an entrepreneur must take into account all of the benefits and hazards. The destiny of the firm is significantly influenced by the use of the proper business forms. Compared to alternative business structures, incorporating a corporation offers stability and significantly more legitimacy. It's crucial to keep in mind that every company and every business owner are unique. There is no one size fits all answer when selecting whether or not to incorporate a business. Our business attorneys at Legalraasta are very knowledgeable in this field and can help you take your company from conception to incorporation. If you're not ready to integrate yet, keep in mind that the variables influencing your choice may alter down the road. Having this manual close to hand for future use might be beneficial. If you have any comments or questions, feel free to contact the author of this post through our website for Company Registration in India.
Parmeet Chhabra, a skilled content writer and editor at LegalRaasta since 2020, with a writing journey of over 5 years, specializes in crafting informative web pages and blogs over diverse domains like education, legal laws, government licences, web development, etc.

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