Starting a company is always a good idea, anyone can decide to start their new business. Actually before deciding, it is always better to go for research to understand the process and procedure to start a company. Planning, Preparing, Registering, Launching and establishing the business is the right way of starting the business. Most important step in starting a company is registering the Company.
There are many advantages in registering your company, here in this article we look at the advantages of registering a Company. Registering a Company is mandatory in India to run a business in the Indian market. Knowing the advantages of company registration is very important and it will be useful for all new business entities to start a business in a right way.
What is a Company
A company is a type of business organization, which is made by law. It is usually an affiliation of persons, joined to undertake business organization, holding a different legal entity, perpetual succession and a common seal. It is a legal existence integrated under the Companies Act, 2013 or any other former acts, dominant in India.
There are different types of Company in India
On the basis of members
One Person Company or OPC: As the name indicates, it can be incorporated by a single person. This is a new category of company specially introduced boost young and startup entrepreneurs.
It also encourages the concept of corporation business. Importantly, you should note that it is not like the sole proprietorship firm, the OPC has separate legal existence with limited financial obligation.
Private Company: A private company needs two or more persons to register the company under the Companies Act. It cannot participate in a recognized stock exchange, and also cannot receive the shares/debentures from the public. The limit of the number of members in a private company is up to 200.
Public Company: Minimum seven members are needed to form a Public Company. The securities are listed on a stock exchange, and their shares can be transferable freely. There is no restriction on the maximum number of members.
On the basis of liability
Company limited by shares: This type of company is one in which memorandum of association defines that the liabilities of the shareholders are restricted to the sum of money unpaid on shares which belongs to them. Therefore, the shareowners are liable only to the extent of shares that they own.
Company limited by guarantee: In this type of company the liability of members is fixed to a certain amount which is stated in the MoA of the company.
Unlimited Company: As the name indicates, the liability does not have any limit. In Unlimited Company, the liability of the member ceases when he/she quits to be a member of that company.
Government Company: In this type of company, at least 51% of the share capital is owned by the State Government/Central Government, or partly by the state and partly by the central government.
Foreign Company: It is a company which has place of business in India but registered outside India. This type of company can run by way of an agent or deals in online and attempts business operations in the country in any other ways.
Section 8 Company: It is a non-profit type of company, created for a charitable object like to encourage commerce, social welfare, science, environmental protection, religion, sports, art, education, research, etc. Central Government provides special license to these types of companies. This company uses its profit for the promotion of the object and members of this company are not paid.
Public Financial Institution: The Company that works on financial and investment business comes under this type of company. And, its 51% or more share capital is invested by the State Government/Central Government, or partly by the state and partly by the central government and are established under any Central or State Act like LIC, ICICI, UTI etc.
On the basis of the control
Holding Company: A parent company which owns and controls the Board of Directors of another company i.e. subsidiary company is called a holding company.
Subsidiary Company: Subsidiary Company is a company in which 51% of its total share capital is possessed by another company.
Associate Company: An Associate company is a company over which another company has considerable influence. It also includes joint venture company. The considerable influence involves controlling a minimum of 20% or more of total voting power, or company decisions, as per the agreement in which both the company signed.
Advantages of Registering a Company
The advantages of registering a Company is elaborated below.
Limited Financial Obligation
The most important benefit of registering a company is the limited liability bestowed upon the company’s directors and shareholders. Bad events like business failures or any other business crisis are not always under an enterpriser’s control in a company; therefore, the person can secure his personal assets in the event of crisis.
If the Company becomes bankrupt and is liquidated, only the assets of the company are utilized to solve the money or its debts or any other problems. The company’s Directors or Shareholders will be safe as their personal liabilities are not made bankrupt and are free to run their business.
Legal Entity and Status
A company is a legal entity; any person can launch and establish it under the Act. The existence of a company is different from its directors and shareholders. Private limited company status is to be taken more seriously as it gives a sense of confidence for all the suppliers and customers about the business. Most of the larger organizations will always prefer and favor in dealing with private limited companies when compared with proprietorship/partnership organizations.
With a flexible and wide range of management designations, the company can easily attract the quality workforce and accomplish strategic motivation to employees.
Another important advantage of registering a Company is eternal succession. The existence of a company will remain the same, even if the directors may come and go and the shareholders may come and go. Once the company is incorporated it remains alive till it is wound up by abiding with the provisions of Law. The death, retirement or disability of the director or any of its members does not affect the Company from continuing, irrespective of change in the memberships.
Cost and Risk Factors
If you are planning to go for high capital expenditure or hi-tech projects then it is always better and advantageous to go by registering your business as a company, as the financial stake involved in hi-tech project is high. Even Banks and Financial Institutions insist on registering the business as company while approving loans or financial assistance instead of going for some other types of organizations.
If you register a company, it is easy to sell the business as all you required is to change the entire shareholding rights to the Buyer and therefore it is easy to transfer the ownership and management by simple agreement. By this way, money, time and importantly the big process of stamp duty also saved in a Company.
Dual or More Relationship
By registering your business as a company form of organization, it gets the potential to make a valid and effective contract with any of its directors and shareholders. Apart from the employment, the person also is in control of the company at the same time. Like, a person can be a shareholder, creditor, and employee and also can be the director of the company at the same time. And a person can be benefited by all his roles for example: if the shareholder of the company is the creditor, he/she can receive dividend and also can earn interest.
If you register your business as a Company, you can enjoy all types of funds. Most of banks and financial institutions usually prefer to provide large financial assistance to the company when compared with other forms of organizations like proprietary concerns or partnership firms.
Organizations that registered as a Company will pay Corporate tax on their profits. It also holds a wider range of leeway and tax deductible costs which you can deduct against a company’s profits.