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An Overview: Incorporation of Company
The question of incorporation of a company is one that has been at the forefront of business law for some time. The rules around incorporation are changing, and to keep up with that evolution you need to keep an eye on the news.
These articles are meant to be more informational than legal advice, but if you are considering incorporating your company or wish to seek incorporation advice from a solicitor or accountant, then read on and know more about the incorporation of the company.
Understanding Incorporation of Company
Before going for the incorporation of a company, one needs to understand their business and then decide on the type of incorporation they should proceed for. So, let’s look at the types of incorporation and the requirements associated with them.
Three Most Common Types of Incorporation
– Incorporation as a company
– Incorporation as a partnership (for partners)
– Incorporation as an LLP (Limited Liability Partnership)
Incorporation of Company
Incorporation of a Company is a legal process for a company to have its existence recognized in the country where it does business.
The main purpose that is considered when it comes to incorporation is to allow the company to legally exist and operate. As a result, a company can now become a business entity with numerous benefits such as tax advantages and access to banking services, just to name a few. Incorporation also allows the company to be held more accountable while allowing shareholders to vote on important matters that impact the corporation’s operations and future growth.
Advantages of Incorporating a Company
The primary advantage of incorporating your business is that it reduces your legal liability by providing you with legal protection against creditors if your business fails and becomes insolvent. here mentioned are multiple benefits of incorporating a company:
- Corporate Personality: An incorporated entity can be defined as a legally recognised firm existing separately from its owner and shareholders. It means that a company can purchase the assets in its name and the owner and other members will have no right to the same assets.
- Limited liability: It is the incorporation of a company that frees the shareholders and other members from the liability of contributing to the company in the event of its closure. None of the company’s members is legally bound to pay more than the unpaid nominal value of their shares in event of a loss.
- Perpetual Succession: As mentioned in Section 34(2) of the Companies Act, an incorporated firm has a feature of perpetual succession. it implies that death or insolvency of any member will not affect the functioning of an incorporated organization.
- Transferable Shares: According to Section 82 of the Companies Act, the shares of the members of the incorporated company are considered movable property. it means that shares can be freely transferred in a manner as specified in the company’s Articles of Association.
- Capacity to Sue: Now that an incorporated company is considered a separate legal entity, it has the right to sue the 3rd party and even other companies.
- Flexibility and Autonomy: The incorporated company has flexibility and autonomy to frame its own policies and rules, and thus, implement the same on the premises.
How to Proceed for a Business Incorporation
The incorporation of a company is an important step in establishing the company’s legal identity. The incorporation process requires several steps and these are explained as follows:
Figuring out the Availability of the Name
The first and foremost step to be followed for incorporating the company is figuring out the appropriate name for the same. No matter what the name of the company is, it must end with the word ‘limited’ if it’s a public company and ‘priva2te limited’ if it’s a private company. Also, the name chosen must not be copied. An application is to be written to the Registrar of Companies to know if the specific name is available for adoption.
Preparing Memorandum of Association and Articles of Association
It is the memorandum of association that acts as the foundation stone for the incorporated company. It comprises the objectives, rules related to dealing with the third party, and the type of business to be conducted by the company. Five important clauses are mentioned in the MoA and these are the name Clause, Registered Office Clause, Objects Clause, Liability Clause, and Capital Clause.
When it comes to the Articles of Association is a document stating the rules to be followed by the internal management of an incorporated company. The rights, duties, and liabilities of the members are specified in AoA.
Printing and Signing MoA and AoA
The prepared memorandum of association and articles of association are to be printed and signed by each member and subscriber of the shares of the company.
Power of Attorney
An attorney is appointed by the promoters to fulfill the legal and complex documentation formalities when incorporating the company. The attorney will be authorized to make necessary changes in the MoA, AoA and other documents to be filed with the registrar.
Statutory Declaration in e-form No. 1
This particular declaration in e-form no. 1 states that all requirements as specified by the Companies Act and the rules thereunder have been complied with.
Paying the registration fees
A fee prescribed by the Registrar of companies is to be paid for incorporating the company.
Conclusion
Effectively, incorporation establishes a protective bubble of restricted liability, also referred to as a corporate veil, over a business’s shareholders and directors. As a result, incorporated enterprises may take the risks necessary for growth without subjecting shareholders, owners, and directors to personal financial obligations beyond their initial contributions to the organization.
