Advantages of Registering a Company
Advantages of Registering a Company
A company can be defined as an artificial person, invisible, intangible, created by or under law, with a distinct legal personality, perpetual succession, and a common seal. It is not affected by the death, insanity, or insolvency of an individual member. Let’s look at some of the biggest advantages of registering a company instead of a Proprietorship Firm or Partnership Firm.
A company is a legal entity which has real existence. It is an artificial person created by law, its existence is separate from its directors and shareholders. It is a juristic person established under the companies act. The word “juristic person” denotes recognition of an entity as a person by law. It can sue and be sued on its own name. An incorporated company enjoys its own rights, bears it own liabilities and handles its own legal proceedings. On incorporation, a company acquires its own personality. It has a wider legal capacity, as a company can own its property and incur debts, by these the individual company members owe no liability towards the company’s creditors for debts.
Perpetual succession means continuing or enduring forever, the company is everlasting. It denotes continuous existence of a corporation or company till it is dissolved legally. Perpetual succession is an important factor. As stated previously, it is a separate legal entity unaffected by death or departure of any member. No matter whatever changes; membership, members, staff, shareholders, nothing of this sort is capable to affect its existence, once incorporated, it remains alive complying to the Companies Act.
Limited Liability is a legal responsibility towards a limited amount of debts. The liability of the members with reference to company’s debts are limited i.e.; limited to the face value of the share purchased by them. An exception to this is when, the members have contractually agreed to unlimited liabilities, the terms & conditions might vary. Such companies are called unlimited companies.
Free & Easy Transferability of Shares
Shares of a company is limited by the shares purchased. It is transferable by a shareholder to another person. Shares can be transferred to anyone the shareholder chooses. A signed copy of the share transfer form would be handed over to the buyer of shares along with share certification. Technically, there are no restrictions on transfer of shares in a public limited company. Hence a share holder could transfer the shares to any person he wishes to. Securities or other interest in a public limited company is freely transferable. However, any contract or agreement in respect of transfer of securities is enforceable as a contract. In case of private limited companies, the law allows private limited companies to impose restrictions on the transfer of their shares. There is never a complete ban on shares.
A company could acquire, own, enjoy and alienate property on its own name. A shareholder is not eligible to claim the company’s property, as they are not owners of the company. A shareholder merely has an interest in the company arising under the articles of association of the company, measuring a sum for liability. The shareholder does not have rights to participate in the profit of the company. However, it is subject to the contract contained in the articles of association. Therefore, property of the company is not the property of the individual member.
Can Sue or Be Sued
A person can take legal action on his / her name. Similarly, company as an independent legal entity could take legal action in its own name against another person. This includes company name change, mergers or demergers.
The company could form an agreement or contract with any individual member. It is possible for a person to take control of the company operations and remain as an employee of the company. Thus, a person can be a shareholder, creditor, director and employee of the company at the same time.
Companies enjoy the privilege of borrowing funds. They have the capacity to issue and accept debentures from the public. Company invites the attraction of banking or other financial institutions too, to render a larger financial assistance.
A company is the only type of legal entity which can help the promoters raise equity funding from Angel Investors, Private Equity Firms and the Stock Exchange. A private limited company would suffice for raising equity funds from Angel Investors and Private Equity Investors. On the other hand, in case of listing or allotment of shares to more than 200 shareholders, a Limited Company would be required.