A company is registered under the Companies Act and there are many requirements to be fulfilled to get it registered. When all the requirements are fulfilled, the company gets registered and when a company is registered under the Companies Act, there are many advantages and disadvantages.
Registering a company brings advantages such as separate legal identity, perpetual succession, limited liability, transfer of shares, capacity to sue, common seal, etc., but it also brings disadvantages such as complexity, transparency, cost, responsibility, etc. Note that the disadvantages of company registration may vary from case to case.
Note: The term “registration” and “incorporation” means the same thing.
Table of Contents
Advantages of the Company
Following are the advantages of the company:
1. Separate Legal Entity:
Separate legal entity is the biggest advantage of the company because under it the company gets separated from its owner and becomes a separate legal entity. According to this, the company and its owner are two different persons.
2. Perpetual Succession:
Perpetual succession means continuity, according to which members may come and go but the company will continue. The company cannot be closed unless it is closed.
3. Limited Liability:
Company members enjoy limited liability facilities. Under limited liability the member is liable only to the extent of his share.
4. Transferability of Shares:
The transferability of shares in a company depends on the company and the governing authority. In a public company, any person can transfer his shares to the general public, but this is not the case in a private company.
5. Common Seal:
The company is an artificial person so it cannot sign. For this, a seal is made in the name of the company so that if there is any agreement or contract, the seal of the company can be put on it.
6. Ability to Sue:
When the business is registered under the Companies Act, the business gets a separate legal entity under the law, under which the company can sue anyone in its name.
7. Capacity of Ownership:
When the business is registered under the Companies Act, the business gets a separate legal entity under the law, under which the company can buy and sell property in its own name.
Disadvantages of the Company
Following are the disadvantages of the company:
1. Complex:
Registering and running a company is more complex than other business forms as there are a number of legal procedures to be followed to register a business under the Companies Act and there are also a number of internal functions that are quite complicated.
2. Expensive:
There is a variety of legal and functional work that has to be done in a company, which requires a lot of money to do, which is why it is more expensive to form and run a company than other forms.
3. Transparency:
All businesses registered under the Companies Act have to publish their financial data publicly, which can be considered the biggest disadvantage for the company as this data can be fatal for the company.
4. Responsibility:
Many types of responsibilities are imposed on companies by the government, which are mandatory for the companies to fulfill, due to which the companies have to spend a lot of money. Note that this responsibility applies only when the company fulfills the parameters set by the government.
Note: Not all the advantages and disadvantages of company registration are mentioned above.
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QNA/FAQ
Q1. Does registering a business as a company give the business a separate legal identity?
Ans: Yes
Q2. Is it expensive to run a company?
Ans: Yes
Q3. What is the advantage of limited liability in a company?
Ans: Under limited liability, members are responsible only for their share.
Q4. Write the advantages of registering a company.
Ans: Following are the advantages of registering a company:
1. The business gets a separate legal identity.
2. The business continues forever unless it is wound up.
3. The members get the benefit of limited liability.
4. The members can transfer their shares.
5. The business gets a separate seal.
6. The business can sue in its own name.
7. The business can purchase anything in its own name.
Q5. Write the disadvantages of registering a company.
Ans: Following are the disadvantages of registering a company:
1. It is difficult to register and run a company.
2. It is expensive to register and run a company.
3. Everything is transparent in the company.
4. Many responsibilities have to be fulfilled in the company.
