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While proceeding with the Incorporation Procedure we need to analyze the benefits and drawbacks of a Company so understated,


The benefits of a company arises from the features it is comprised of.

Limited Liability: The Company exists as a separate legal entity as from its members. The liability of the company is different as from its members of a company. Liability for repayment of debts and lawsuits incurred by the Company, lies on it and not the owner. The liability of a company can be divided into 2 major segments

  • Limited Liability
  • Liability limited by Shares
  • Liability Limited by Guarantee
  • Liability limited both by Shares and by Guarantee
  • Unlimited Liability

Perpetual Succession: An incorporated company has perpetual succession. Perpetual Succession means the company shall continue to exist even if the member dies or ceases, etc. Changes within the management does not bring any affect onto the identity of the company, the Company will remain the same with same privileges, immunities, estates and possessions. The Company shall continue to exist till its wound up in accordance with the provisions of the relevant law.

Easy Transferable Ownership: The shares and other interest of any member in the Company shall tend to be a movable property and can be transferable in the manner so provided by the Articles of such company. Therefore, it is easier to subscribe or leave the membership of the Company. Also it is easier to transfer the ownership.

Separate Property: A Company as a legal entity is capable of owning its funds and other properties. The Company is the real person in whose hands all the property is vested and such company has the sole right to control, manage and dispose off the property so vested in the hands of the company. The property of Company is not the property of its shareholders.

Taxation: As everyone wants to minimize his tax burden thus company as per the income tax act 1961 has another main benefit of incorporation towards taxation. Companies are often taxed at a lower rate and are provided with better taxable benefits as compared to other forms of business organization.

Raising Money: Raising money as a small business and a sole proprietorship or partnership can be difficult. But as per Companies act 2013 a company can sell shares to the public or can accept deposits from public and can therefore raise money easier than other business structure types. The modes of financing business carried on by company are numerous. Moreover, since the companies are governed by particular law and have to comply with stringent disclosure norms, therefore they enjoy good credit worthiness with various financial institutions

Selling the Business: It is easy to sell business for a company than any other business form. As business Corporation value will be based on the business, not the owner, therefore making it easy to sell the Company.

Capacity to sue As a juristic legal person, a Company can sue in its name and be sued by others.

Better Governed:Companies are governed by The Companies Act, 2013 and have to follow various other regulatory procedures during the course of its governance, moreover they have to comply with the stringent disclosure norms so imposed by the authority, which let to better governed organizations and creation of value for owners.

Drawbacks +

Costly to Form and Run:In comparison with other business forms, it is costly to incorporate and run a Company. Lot of compliances is required to be carried every year and therefore the cost of running is also high in comparison to other forms. Moreover heavy fines and penalties has been prescribed for the noncompliance.

Regulated form of Business:Company is highly regulated form of business , as lot of compliances like maintenance of various registers , holding of meetings are required to done each year and for undertaking various activities or decision , it is necessary to obtain the permission of specified number of shareholders and in some , of regulatory authorities also. The Companies Act 1956 also prescribes various provisions how the company will be managed and run.

Audit and Financial Disclosures:: It is necessary for all the companies to get its accounts audited annually and to prepare its balance sheet and profit and loss account in accordance with the prescribed guidelines. Lot of information as to the financial condition of the business is required to be disclosed and moreover, all such documents are available for public inspection, therefore it is not possible to maintain financial secrecy of the business.

Lack of Control: In case of companies, the ownership and management is divorced, in order words, it is not necessary the people owning the company are also managing it. The Company is managed by Directors, which are appointed by the shareholders. The Directors are responsible for running and managing the company and taking key business decisions and shareholders don't have any direct control over the company and therefore they are not much aware of whats happening in the company.

Long Closing Proceedings:: It is generally not easy to close the company as compared to other forms of business, the procedure to close is long and involves compliance of various formalities, at times it takes 1-2 years to completely wind-up the company. Moreover in certain cases, it is necessary to take the permission of the High Court to close the Company

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