Why to
incorporate a Company or LLP?
Business
can be carried in 2 ways.
1.
Incorporated
business as Company or LLP
2.
Unincorporated
Business as Partnership or Proprietorship
Compared
to unincorporated business, an incorporated business has the following
advantages:
a. Limited Liability
A Company / LLP has a separate legal entity other
than from its promoters (shareholders / partners/ directors / designated
partners). Company/LLP and persons who own and manage it are separate.
Liability for repayment of debts and liabilities incurred by the Company lies
on it and not with the persons who own and manage it unless the liability was occurred
due to an intentional action by the promoter. The personal properties of the promoters
are not exposed to corporate liabilities. Registering a business as Company or
LLP adds up an additional layer of protection to its promoters.
b. Perpetual
Succession
Company / LLP has perpetual succession.
Irrespective of the changes in the persons who own and manage the Company/LLP,
the Company continues to be the same entity with the same privileges,
immunities, estates and possessions. Company / LLP shall continue to exist till
its winding up in accordance with the provisions of the relevant law.
c. Transferability
of Ownership / Interest
The shares and interest of any
member/shareholder in the Company / LLP is a movable property and is easily
transferable in the manner provided by the Articles of Association. In other
forms of business, the transfer of interest is not easily possible. Therefore,
it is easier to obtain or transfer the membership of a Company.
d. Separate Property
As a legal entity, Company is capable of
owning its funds and other properties. The Company will be the owner of all the
property vested with it. The company can control, manage and dispose the same
ob its behalf. The property of Company is not the property of its shareholders.
e. Taxation
As compared to other forms of business
organization, company form of organisation is always benefited with lower tax
rate, better taxable benefits in terms of tax holidays in specific area of
operation, subject to terms and conditions.
f. Financing the
operation
Sole proprietorship or Partnership forms of
business, faces the major difficulty in financing its operation. A Company can
raise the required funds by issuing its shares to the public or raise funds
through accepting deposits.
Being governed by stringent provisions of
law, company form of organisation enjoys better creditworthiness with financial
institutions. So it is easier to obtain debt financing by the companies from
Banks and other financial institutions.
g. Capacity to sue
Being a legal person, in the eyes of law, a
Company can sue in its name and be sued by others. The persons who own / manage
the company are not directly liable for the acts and deeds of the company
unless there is a violation / misuse of their fiduciary position with the
Company.
h. Governance and disclosure
norms
In India, Company form of organisations is
governed by the Companies Act, 1956. A Company has to follow various regulatory
procedures during the course of its operations ands are subject to comply with
stringent disclosure norms. Good governance and transparent disclosure of
operations, adds value to the business of the company and thus benefiting the
true owners of the company, its Shareholders.
