Transforming your business idea and turning it into reality can be achieved with company incorporation. It aids new and old entrepreneurs to establish their firms as a separate legal entity. Doing so ensures a company’s assets and income will be distinguished from its investors and owners.

Incorporating a company benefits both businesses and their owners. From perpetual existence to limited liability protection, the advantages are never-ending. To learn more, let’s discuss the basics and advantages of company incorporation in detail.

Explaining the Incorporation of a Company

A legal entity that lives independently of its shareholders or owners is known as an incorporated firm. It can own property, secure contracts, and perform business activities.

When incorporating a firm, ensure you draft “articles of incorporation.” This crucial document will state the company’s address, business purpose, the class of stock and the number of shares being issued.

After firm incorporation, its tax liability is also treated differently than other business entities, like a sole proprietorship or partnership. The business also gets the opportunity to sell shares and raise capital hassle-free and quickly.

Top Company Incorporation Advantages

If you are looking to incorporate your firm, here’s how it can benefit you in the long run:

Corporate Credibility

The incorporation of a company creates a clear legal division between a firm’s assets and its owner. It’s usually in a limited liability format. Such separation makes securing monetary support from private investors, credit unions, and banks easier. Not to forget, it offers a shield to potential investors and ensures their personal liability cannot be tied directly with the business’ liability.

Besides securing bank funding, it also offers the opportunity to raise funds via share sales. This brings capital into the business and gives potential investors the prospect of owning a share of its success. Incorporation even enables the buying back of shares in future at a price favourable to both the stakeholders and their business.

Perpetual Succession

As per the Companies Act Section 34(2), an incorporated company will continue to exist despite any changes in its company members. It has the right to enjoy perpetual succession.

Whether it’s insolvency or the death of individual members, such situations will not affect the incorporated business in any form. It will be the same entity with the same immunities, occupancies, privileges and estate.

Transferability of Shares

Shares are deemed at par with movable property, They can be effortlessly transferred from one person to another, offering liquidity to the stakeholders. Company members have the power to encash these shares at any time they want.

Remember, shares can be transferred voluntarily in a public limited company. On the contrary, the share transfer is not frequent in a private limited firm due to it being closely held. Yet, it is not restricted.

Ability to Sue

When a corporation is established as a legal entity, it has the right to sue other companies and individuals. Not to forget, they can also be sued back.

However, the directors of the firm are not responsible for lawsuits filed against the business..

After incorporation, the business has the freedom or autonomy to create its own strategies or policies and execute them at its will. But, they are still subjected to work according to the provisions of the Companies Act, Memorandum and Articles of Association, and general principles of good conscience and laws.

Limited Liability 

“Securing limited liability for its members” is the main motto of business incorporation

If a business experiences a closure, its members are solely responsible for contributing to the assets and liabilities of the firm (as stated in the Companies Act Section 34(2))

Whereas, in the case of company incorporation, members are not legally bound to pay higher than the nominal value of shares they hold, which still remains due.

Better Expertise and Efficiency 

After a company is incorporated, its ownership and management become distinct. Therefore, specialists can be assigned to handle each function within the firm, leading to increased productivity and better efficiency.

With the availability of more resources, an incorporated business will also be able to offer competitive salary packages to top industry talents. By using their expertise, the new hires will help the firm to scale rapidly.

6 Steps to Incorporate a Firm in India

Follow these 6 simple steps to make your company an incorporated entity:

1. Receive a Director Identification Number (DIN) for your firm’s proposed directors.
2. Get subscribers’ Digital Signature Certificates (DSCs).
3. Ensure you pick the right business name. It should not be similar to any existing company names.
4. File the business’ Articles of Association and Memorandum of Association correctly.
5. Complete the SPICe Form – INC 32 rightly.
6. Submit the forms INC 35 or AGILE with the Registrar of Companies (RoC). It will help you to register for ESIC, EPFO, and GST altogether

Conclusion

Company incorporation is a great solution for those entrepreneurs who are looking to avoid personal liability, invite more capital, gain tax incentives, and more.

Thus, to choose the best business form for yourself, factor in the advantages mentioned above and seek professional assistance.