Registering a company is always advised for new and existing businesses as it offers many advantages to them besides providing authenticity to the business venture. However, there are a few cons associated with company registration that must also be studied before registering a company in India. Some of the terms are in fact worth investigating before making important decisions and making your company more profitable.
Pros behind registering a company in India
Make your firm a legal entity
Company refers to an artificial person created by law, independent of shareholders and directors. It is a legal entity that has been registered under the Companies Act. The term juristic is attached to it that denotes the entity alive by law. It can sue or get sued by others in its name while enjoying rights, liabilities, asset holdings and legal proceedings. When you register your company, it gets a legal personality and you no longer remain bound to bear all liabilities solely.
Everlasting succession or perpetual existence means that the company remains forever until it is dissolved legally. Perpetual or everlasting succession is significant, especially during the times when the owner or any of the members dies eventually. As long as an organization is incorporated under the Companies Act, it remains active regardless of which director sits on the board, which employees are changed, or what ownership changes.
This is one of the reasons many business owners register their company once they initiate the business formation process. The liability of every member is limited as per the face value of the share they have with them. This is however excepted when the member agrees to unlimited liability. Such companies are termed unlimited companies.
Becomes capable of suing or being sued
Just like any person is capable of suing or being sued, a registered company can sue others or get sued under its name. The company name can be used further during mergers and demergers as well. The company can enter into contracts with the others or take control of operations under its name. A person can take control over all the operations in the form of a creditor, shareholder, director or company employee.
Fund borrowing and equity raising
Companies are able to borrow money. They have the right to impose and accept public debentures. The company also welcomes financial services or other investment firms to provide additional financial support. The only legal organization that can assist promoters in raising equity capital from Angel Investors, Private Equity Firms, and the Stock Exchange is a corporation.
A company can buy, allot or alienate property under its name. Shareholders cannot claim the property of the company as their own as they are not the owners of the company. The shareholder does not have the right to share company profits unless it is been mentioned in the contract in the articles of association. Consequently, the company’s property does not remain in the hands of its members, but becomes an asset.
Easy Transferability of Shares
The number of shares in a firm is limited by the number of shares acquired. It can be transferred from one stakeholder to another. The buyer of shares will get a signed copy of the share transfer form as well as share certification. Transferring shares in a public limited business is technically unrestricted. As a result, a shareholder can transfer his or her shares to anybody he wants.
Cons associated with company registration
The initial costs related to incorporation are one of the cons associated with company registration. There are costs such as accountant or attorney’s fees, articles of incorporation costs, paper filing costs, etc. Ongoing fees for maintenance and corporation are also incurred.
Taxation and structure
Some of the companies registered such as C Corporation can be taxed twice. Double taxation takes place when the tax is charged on profits and thereafter on dividends paid to the company shareholders. A recommended structure also might become an issue for new companies. This includes operational requirements, management structure and accounting practices as per the Companies Act.
Loss of ownership
When a company becomes a stock corporation, the founder or the owner cannot retain complete control over the business. The corporation is operated after consulting with the board of directors elected by company shareholders.
Lengthy paperwork and dissolution
Many companies have to file annual reports along with the company’s financial status publicly. They may also be asked to acquire licenses or permits for conducting business operations in India. Dissolution can also be very complicated, unlike companies that are unregistered.
Contact DailyHawker, If You need any help with company registration in India.