Incorporation of Company and Benefits of Company Incorporation

Last Updated at: March 11, 2020
204
Incorporation of Company and Benefits of Company Incorporation
  1. What is company Incorporation?

  2. What are the key features of Company Incorporation?

  3. Why do you need to incorporate your business?

  4. What are the benefits of company incorporation?

 

What is company Incorporation?

The legal process to form a company or corporate entity is termed as the Incorporation of a company. It involves the process of separating the assets, income of the firm from the owners and the investors. Incorporation of a company is the legal procedures that involve declaring the corporate entity separate from the legal owners or the investors of the company.

What are the key features of Company Incorporation?

  • The Incorporation of the company describes the way how the company is legally formed and brought into existence.
  • Incorporation of the company involves drafting and writing up the article of Incorporation and also identifying the shareholders.

When two or more persons, minimum seven in case of public ltd come together to form a company for doing lawful business after disclosing their names in the memorandum of association and fulfilling the other legal requirements.it is referred to as the Incorporation of the company.

Why do you need to incorporate your business?

You need to incorporate your business for –

  • Savings of tax
  • Protection of the liability
  • The credibility of the business
  • Ease of raising capital
  • Perpetual duration
  • Ownership transfer
  • Privacy

company incorporation worldwide

Advantages/Benefits of Company Incorporation

The day to day activities of a company is looked at by the directors of the company. They are the ones responsible for making the decisions that are best in the interest of the company. Indeed, the Incorporation of the company creates a limited liability for the shareholders and the directors. The directors of the company are chosen annually. The number of directors depends upon the size of the company. The directors of the company do not have any personal liability towards the debts of the company. Incorporation of the company also helps the management or the board of directors to take risks that can help in the growth without directly affecting the personal financial liability of the stockholders and the owners. Let us see 10 advantages of company incorporation in detail.

  1. Corporate Veil

Incorporation effectively creates a protective sphere of limited liability known as Corporate Veil, which protects the interest of the company’s shareholders and directors. Thus, incorporated businesses can digest many risks that help in the growth of the company and business without exposing owners, directors, and shareholders to many financial liabilities outside of their original investments in the company.

  1. Corporate personality

The Incorporation of the company helps in setting up a legal entity of the firm irrespective and different from the legal entity of the stockholder, owners of the firm, which is different from the partnership firms.

  1. Limited Liabilities

According to the Company Act Section 34(2), if a company is shut down, members are solely responsible for the liabilities but if the company is incorporated the members are legally bound to contribute with some nominal share held by the members and few other liabilities. It is one of the most important reasons why companies get incorporated.

  1. Perpetual Succession

It is the continuation of the business, organization despite the death of any owner, bankruptcy, insanity, transfer of shares to a new entity, etc. Thus, it provides immunity to the company. The company will work until the company gets shut down.

  1. Transferable Shares

According to Companies Act Section 82, the shares and other interest of the members are transferable and is movable property. However, this provides liquidity to the investors and generates investment of funds in shares. Members can sell shares anytime either in the stock market or in an open market.

  1. Separate Property

An incorporated company is denoted as a Legal entity, and it can hold its assets and funds. The property of the company is treated as separate property rather than the shareholder’s property. The company is treated as a real person who manages, controls and disposes of the property. Under the law, if the shareholders use the company’s property for their personal use, they are liable to be held for criminal misappropriation of the company’s fund.

  1. Capacity to sue

An incorporated company is a legal entity and has the right to sue other people, and other people and companies can also sue it. However, some of the shareholders, such as Managing directors, some board members are not liable to be sued in the name of the company.

  1. Flexibility and Autonomy

An incorporated company has autonomy and independence to form their own rules and policies and how they can implement these policies. However, these are subjected to Equity rules, General principles of law and good conscience.

  1. Enhances Business’ Credibility

Businesses which are incorporated goes beyond finances. Incorporated businesses are perceived as more stable than unincorporated businesses. In short, having “Inc.” or “ltd” after the company name brings stability permanence, credibility.

  1. Other considerations

Tax benefits are one of the significant reasons to get businesses incorporated. A corporation is taxed on its profit which is reduced by qualifying business expenses. An incorporated company may also deduct salaries, health benefits, etc. to meet their financial goals. Taxation of the corporation is a bit complex and have their advantages and disadvantages.

 

0

Incorporation of Company and Benefits of Company Incorporation

204
  1. What is company Incorporation?

  2. What are the key features of Company Incorporation?

  3. Why do you need to incorporate your business?

  4. What are the benefits of company incorporation?

 

What is company Incorporation?

The legal process to form a company or corporate entity is termed as the Incorporation of a company. It involves the process of separating the assets, income of the firm from the owners and the investors. Incorporation of a company is the legal procedures that involve declaring the corporate entity separate from the legal owners or the investors of the company.

What are the key features of Company Incorporation?

  • The Incorporation of the company describes the way how the company is legally formed and brought into existence.
  • Incorporation of the company involves drafting and writing up the article of Incorporation and also identifying the shareholders.

When two or more persons, minimum seven in case of public ltd come together to form a company for doing lawful business after disclosing their names in the memorandum of association and fulfilling the other legal requirements.it is referred to as the Incorporation of the company.

Why do you need to incorporate your business?

You need to incorporate your business for –

  • Savings of tax
  • Protection of the liability
  • The credibility of the business
  • Ease of raising capital
  • Perpetual duration
  • Ownership transfer
  • Privacy

company incorporation worldwide

Advantages/Benefits of Company Incorporation

The day to day activities of a company is looked at by the directors of the company. They are the ones responsible for making the decisions that are best in the interest of the company. Indeed, the Incorporation of the company creates a limited liability for the shareholders and the directors. The directors of the company are chosen annually. The number of directors depends upon the size of the company. The directors of the company do not have any personal liability towards the debts of the company. Incorporation of the company also helps the management or the board of directors to take risks that can help in the growth without directly affecting the personal financial liability of the stockholders and the owners. Let us see 10 advantages of company incorporation in detail.

  1. Corporate Veil

Incorporation effectively creates a protective sphere of limited liability known as Corporate Veil, which protects the interest of the company’s shareholders and directors. Thus, incorporated businesses can digest many risks that help in the growth of the company and business without exposing owners, directors, and shareholders to many financial liabilities outside of their original investments in the company.

  1. Corporate personality

The Incorporation of the company helps in setting up a legal entity of the firm irrespective and different from the legal entity of the stockholder, owners of the firm, which is different from the partnership firms.

  1. Limited Liabilities

According to the Company Act Section 34(2), if a company is shut down, members are solely responsible for the liabilities but if the company is incorporated the members are legally bound to contribute with some nominal share held by the members and few other liabilities. It is one of the most important reasons why companies get incorporated.

  1. Perpetual Succession

It is the continuation of the business, organization despite the death of any owner, bankruptcy, insanity, transfer of shares to a new entity, etc. Thus, it provides immunity to the company. The company will work until the company gets shut down.

  1. Transferable Shares

According to Companies Act Section 82, the shares and other interest of the members are transferable and is movable property. However, this provides liquidity to the investors and generates investment of funds in shares. Members can sell shares anytime either in the stock market or in an open market.

  1. Separate Property

An incorporated company is denoted as a Legal entity, and it can hold its assets and funds. The property of the company is treated as separate property rather than the shareholder’s property. The company is treated as a real person who manages, controls and disposes of the property. Under the law, if the shareholders use the company’s property for their personal use, they are liable to be held for criminal misappropriation of the company’s fund.

  1. Capacity to sue

An incorporated company is a legal entity and has the right to sue other people, and other people and companies can also sue it. However, some of the shareholders, such as Managing directors, some board members are not liable to be sued in the name of the company.

  1. Flexibility and Autonomy

An incorporated company has autonomy and independence to form their own rules and policies and how they can implement these policies. However, these are subjected to Equity rules, General principles of law and good conscience.

  1. Enhances Business’ Credibility

Businesses which are incorporated goes beyond finances. Incorporated businesses are perceived as more stable than unincorporated businesses. In short, having “Inc.” or “ltd” after the company name brings stability permanence, credibility.

  1. Other considerations

Tax benefits are one of the significant reasons to get businesses incorporated. A corporation is taxed on its profit which is reduced by qualifying business expenses. An incorporated company may also deduct salaries, health benefits, etc. to meet their financial goals. Taxation of the corporation is a bit complex and have their advantages and disadvantages.

 

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