The advantage and disadvantage of corporate form of enterprise has given in the below article. As compared to various kinds of business associations, a registered company has the following benefits:
Corporate Personality
Unlike a partnership firm, which has no continuance apart from its members, a company is a juristic person independent or distinct legal of its members. A registered company under this law is a distinct body, even the one-man company as mentioned above in Venkatesh Private Limited, case is different from shareholders.
The companies act 1956 under the section 34(2) gives that from the date of registration, the subscribers to the memorandum and other members shall be a body corporate by the name included in the memorandum, useful of exercising the complete roles of a registered company containing a common seal.
Limited Liability
The companies act gives that in the function of the company being wound-up, the members shall have the responsibility to provide to the company assets under the section 34(2). If companies made limited by shares, no member is skip to provide anything more than the official value of the shares held by him which remains unpaid. The advantage of limiting the liability is one of the major benefits of doing business under the company form of organization.
Perpetual Succession
Under the section 34(2), a registered company has permanent succession. However any change in its members, the company will be the aforesaid body with the same benefits and immunities. The insolvency or death of an individual members does not in any way change the business operations. The company shall maintain to exist eternally till it is wound-up in following with the conditions of the companies act.
Separate Property
A legal entity company is qualified of having its own funds and other assets. Company property is not the property of the shareholders, it is the company property. The company is the real person in which all the property is ordered and by which it is managed, controlled and disposed of”. In law, even a member keeping the majority of shares or a company managing director is responsible for criminal mis-appropriation of the property or funds of the company.
Transferable Shares
Under the companies act 1956 of section 82 provides that “The shares or other interest of a company member becomes movable property, transferable in the way mentioned by the company articles”. This helps investment of funds in the shares, thus makes the members may encash them at any time. It also gives exchangeability to the depositors shares could be sold in the stock exchange or at any market and makes constant to the company.
Capacity to Sue:
As a legal person, a company can request in its name and be plead by others. The managing director and other directors are not likely to be requested for dues against a company.
Flexibility and Autonomy
The company has an independence to make its own procedures and execute them, subject to the common principles of law, values and good conscience and in following with the conditions included in the companies act, AoA and Memorandum.
Disadvantages of Corporate Form of Enterprise
There are, however, few disadvantages and problems in registration are given in the below topics.
Formalities and expenses
Company registration is combined with complex, detailed legal formalities, cumbersome and process, including significant amount of time and money. Such detailed process have been put down to keep persons who are not important about doing business, as a company likes different provisions from the community. After the company registration its circumstances and working must be managed purely in accordance with the legal conditions. So, different documents and returns are need to be registered with ROC in Bangalore office. Sanction and approval of the company law board, the court, the government the ROC and other appropriate authority is need to be gained for accepted corporate activities.
Corporate Disclosures
However the detailed legal framework created to make maximum declaration of corporate details. The company members are owning relatively confined availability to its inner management and daily management of corporate working.
Separation of control from ownership
The company members are not owning as powerful and familiar control over its working as one can have in other kinds of business association, say a partnership firm. Company members are neither the owners nor the consultants of the company. The members may not have an operative and total control over the company’s working as the partners may over the firm affairs.
Greater social responsibility
Owning consider to the huge powers maintained by the companies and the affect they have on the society. The companies are shown huge social power in their working and for that reason are subject to huge control and rule than that by which other forms of business organization are managed and ruled.
Greater tax burden in few cases
In exact situations, the tax burden on a company is more than that on various kinds of business association. A company is responsible to tax without any least taxable limit as is mentioned in the case of partnership firm registration and other registration procedures. It has to pay income-tax on the total of its income at a regular rate whereas others are taxed on slab system or graduated scale. These tax effects may have important bearing on a choice regarding the selection of any kind of business association. The tax indications may direct the validation of the partnership type of business association as beneficial at the beginning stages to be changed into a company.
Detailed winding-up procedure
The act offers detailed and elaborate process for winding-up of companies which is more cost and time consuming than that which is related to other forms of business associations.