Advantages and Disadvantages of incorporation of a company

When a company changes its name, the Registrar of Companies has to enter the new name in the register and a new certificate of incorporation must be issued with necessary alterations. Company cannot sue on pre-incorporation contracts- A company cannot by adoption or ratification obtain the benefit of a contract made on its behalf before the company came into existence. In Natal Land and Colonization Co v. Pauline Colliery Syndicate, the promoters of a proposed company obtained an agreement from a landlord that he would grant lease of coal mining rights to the company. The company could not, after incorporation, enforce this contract. Agency or Trust or Government company- The separate existence of a company may be ignored when it is being used as an agent or trustee. In State of UP v. Renusagar Power Co, it was held that a power generating unit created by a company for its exclusive supply was not regarded as a separate entity for the purpose of excise.

The corporation is governed by a board of directors who are elected by shareholders. It can have a number of members/shareholders who purchase part of the enterprise. These members can easily transfer their ownership of the business.

II. Disadvantages of Incorporation of a Company

Shares are made publicly available by public company registration, expanding commercial opportunities. The incorporation of a public company offers additional revenue possibilities through the public offering of new shares. The ownership and management are held in different hands.

The continuous administrative work likewise incorporates government forms, bookkeeping records, meeting minutes, and any necessary licenses and allows for leading business. Incorporating an organization alludes to the course of legitimately shaping an organization or a corporate substance. Benefits of consolidation of an organization are restricted risk, adaptable offers, unending progression, separate property, the ability to sue, adaptability, and autonomy. The term underlines the enrollment and the arrangement of the organization and doesn’t further investigate its significance, nature, and attributes. Difficulty Dissolving – While perpetual existence is an advantage of incorporating, it can also be a disadvantage because it can need significant time and money to fulfill the necessary procedures for dissolution. Directors as trustees of the power entrusted to them in the sense that they must exercise their powers honestly and in the interest of the company and the shareholders and not in their own interest.

The Supreme Court ruled that despite being a legal entity with all of its property owned by one member who controls, manages, and disposes of it, a company cannot guarantee its assets in its own name. A shareholder of a timber company, held all shares of the company however one. He likewise insured the timber on his own name, which was pulverized in fire. The Supreme Court held that a company being a legal person, in which all its property is vested and by which it is controlled, managed and disposed of a member cannot, ensure the companies property on its own name. It was held that a company’s members may come and go but this does not affect the legal personality of the company.

What Is A Company? Advantages And Disadvantages Of The Company

This type of corporation is commonly referred to as a ‘Single Member Company.’ Liechtenstein, for example, was the world’s first corporation where the notion of a ‘Single Member Company’ was legally recognised. Online Legal India is a part of FastInfo Legal Services Pvt Ltd. Which is registered under the Companies Act, 2013, recognized by the Govt.

If a sole dealer is sued or their enterprise becomes bancrupt, their personal funds and belongings are in danger. A limited company is a type of enterprise construction that has been incorporated at Companies House as a legal ‘individual’. It is totally separate from its homeowners, it can enter into contracts in its personal title and is liable for its own actions, funds and liabilities. The owners of a company are protected by ‘limited liability’, which implies they are only answerable for enterprise money owed as much as the worth of their investments or what they guarantee to the company. The incorporation of an organization refers back to the authorized course of that is used to type a corporate entity or an organization.

Case Law – Salomon vs. Salomon & Co. Ltd. [( AC 22]

The ‘doctrine of constructive notice’ is more or less an unreal doctrine. It does not take notice of the realities of business life. People know a company through its officers and not through its documents. Section 9 of the European Communities Act, 1972 has abrogated this doctrine.

• As lengthy as you adjust to the required formalities and paperwork, creditors or court docket judgments usually will not be capable of touch your private belongings.
• This is so because the public also owns the money used to invest in the company.
• A private limited company has a perpetual succession, which means it has a continued or uninterrupted existence until it is legally dissolved.
• The property of the company is treated as separate property rather than the shareholder’s property.
• These laws have been established to protect the shareholders’ interests in the company.

Companies are the forms of business which are regulated by the government in all aspects when compared to other forms of business. The media, social and governmental audits of companies enable consumers to know whose product they are buying or whose service they are availing. For the expansion of any business, it’s better for it to function as a company and avail governmental benefits. These are the advantages and disadvantages of a private limited company. An entrepreneur must consider the advantages and disadvantages before deciding to incorporate a private limited company. In a private limited company, the transfer of shares is not allowed under its AOA, and these shares cannot be listed on the stock exchanges.

The ownership-management distinction will lead to a conflict of interest between management’s obligation to maximize shareholder value and increase its revenue. As prescribed in Section 2 of the Act, you can form a company with only 1 Director and 1 member. In this form of the company, there are lesser compliance requirements compared to a private company. Hence, OPC means a single individual who can be a resident or NRI, can incorporate his/her business that has all the features of a company and its benefits are similar to the sole proprietorship. A limited company is a type of business structure that has been incorporated at Companies House as a legal ‘person’. It is completely separate from its owners, it can enter into contracts in its own name and is responsible for its own actions, finances and liabilities.

Advantages and disadvantages of Private Limited Company

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.

In English and Colonial Produce Co, Re, a solicitor on the request of promoters prepared a company’s documents and spent time and money in getting it registered. But the company was not held to be bound to pay for those services and expenses. The officials and executives who oversee a company’s internal affairs and make the bulk of its policies are not necessarily shareholders. For can, publicly traded corporations, this may become a problem. In the absence of a controlling shareholder, and the majority of shareholders vote by a proxy, the company’s assets shall be managed by the board of directors and the officials.

In those conditions wherein the Court feels that the corporate structure is being misused, it will tear through the corporate veil and uncover its genuine character and nature. Loss of Personal Ownership – If a corporation is a stock corporation, an individual doesn’t sustain full control of the entity. The corporation is controlled by a board of directors who are nominated by the shareholders.

We are a financial blog that offers expert advise for wealth management. To assign powers of Superintendent of central tax to Additional Assistant Directors in DGGI, DGGST and DG Audit. The confusion that it is an imaginary individual isn’t accurate. It, in actuality, is a counterfeit or a legitimate individual, perceived by law, whenever it is enrolled, and it owes comparative freedoms and obligations that a characteristic individual has. In the Goods & Service Tax regime, paying tax is not just the concern, as collecting is als…

• Business owners should weigh these potential drawbacks against the benefits of incorporation before deciding to incorporate their business.
• There are additionally continuous charges for keeping an organization.
• The name of the nominee must be included in the Memorandum of Association .
• Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax.

Absence of consent-where a prospectus was issued without the a directors’, etc knowledge or consent, and on becoming aware of its issue, he forthwith gave reasonable public notice of that fact, he is not liable. Damages for deceit-any person induced by a fraudulent statement in a prospectus to take shares, is entitled to sue the company for damages. He must prove the same matters in claiming damages for deceit as in claiming rescission of the contract. He cannot both retain the shares and get damages against the company. He must show that he has repudiated the shares and has not acted as a shareholder after discovering the fraud or misrepresentation. Rescission for misrepresentation-the shareholder can also sue the company for rescission of the contract.

The misuse of advantages and disadvantages of incorporation governance has led to the adoption of a broader range of federal and state laws to discourage such abuses from repeating. Compliance with this legislation can be burdensome and costly for companies. The Board of Directors must maintain a commitment to ensure corporate governance accountability, fairness and transparency of diversity. The members of the board will also have the requisite expertise to review management activities.

A company in the eyes of the law is an artificial person. The courts in India do not seem to have taken the doctrine seriously. For example, the Calcutta High Court in Charnock Collieries Co Ltd. v. Bholanath, enforced a security which was not signed in accordance with the company’s articles.

Attach all required documentation to your application, including your ID, your PAN card, the address of the planned office, your articles of association, your memorandum of association, etc. The applicant must make sure the name of his prospective PLC is distinctive and does not sound like any other public limited companies already in existence. As a result, it is recommended to check the MCA portal for name availability. According to the PLC suffix, shareholders are only legally obligated to pay back loans up to the minimum value of their shares in the event that the company has losses. Sole Trading Concerns and Partnership firms suffer due to low resources and are mostly in need of funds.

D) Agency or Trust or Government company- The separate existence of a company may be ignored when it is being used as an agent or trustee. It was argued on behalf of the unsecured creditors that, though the co was incorporated, it never had an independent existence. It was S himself trading under another name, but the House of Lords held Salomon & Co.

For example, in the case of Connors Bros. v. Connors , this principle was applied against the managing director who made use of his position contrary to public policy. In cases where a company uses the corporate veil for the commission of fraud or improper conduct, courts have lifted the veil and looked at the realities of the situation. In the case of Gilford Motor Co Ltd v. Horne, a company was restrained from acting when its principal shareholder was bound by a restraint covenant and had incorporated the company only to escape the covenant.

There is a conflict of opinion over decision-making when the board of directors consists of at least two persons. However, there is no such conflict in a one-person company because the director is also the company’s shareholder and owner. A shareholder in a one-person company only has to cover limited liability, which is why the notion of a one-person company is far more evolved than that of a sole proprietorship business. These characteristics not only convey information about the nature of PLCs but also alert individuals to the benefits and drawbacks of public limited company registration. The members of the private limited company have limited liability.