The word ‘company’ is derived from the Latin word Com Panis (Com means ‘With or together’ and Panis means ‘Bread’), and it originally referred to an association of persons who took their meals together. In the legal sense, a company is an association of both natural and artificial persons and is incorporated under the existing law of a country. In terms of the Companies Act, 2013 a “company” means a company incorporated under this Act or under any previous company law [Section 2 (68)]
The Benefits under Company Registration are as follows:
The directors and shareholders of the company have no personal liability for any unfortunate event that happens like business loss, or failure in the business. Hence Registered Company protects the personal assets of the directors and shareholders in the unfortunate event which is not in the control of anybody.
The existence of the company remains forever:
One of the popular sayings is that Directors or promoters may come and go, but the existence of the Company remains forever. It has separate legal existence from the eyes of the law. Once a company is registered it remains alive until it’s closed down as per the Companies Act, 2013. The death of the promoters and directors does not affect the continuity of the company.
Legal Entity status or Recognition:
A registered company like Private Limited or Limited Company, LLP, Nidhi company, exists separate from its directors or Members, Registered company status enables you to be taken more seriously than other unorganized business like firms. Operations of a Registered company give more confidence to the suppliers, Bankers who will prefer to deal with Registered companies. Easy to attract a talented workforce and achieve strategic goals through employees by designating a wide range of positions like Executive directors, operation directors, etc.
Big Project cost and Risk factors:
For businesses that need high capital outflow, usage of hi-tech systems, wherein financial stake is high, Banks and financial institutes prefer the Registered company and insist to have a legally registered company.
In the company form of business, a separate share-holders agreement can be executed between the company and its Directors, promoters, etc. It’s also possible, that the promoter becomes an employee of the company and draws a salary. The person at the same time becomes, Shareholder, director, employee, or a creditor of the company example:
- As a director, he can draw a salary from the company
- As a shareholder, he can draw dividends from company
- As a landlord/lesser, receive rent from the company
- As a creditor, he can lend and receive interest from Company As a supplier, he supplies the goods or services from his family business to the company.
Directors and management of the company can easily transfer their stake from one to another, This will saves time, and the money of the business owners, and saves a big amount of stamp duty.
As a company, it has better avenues for borrowing funds from the business. It can issue Debenture certificates, private placement, issue preference share capital, etc. accept deposits from the public, and even borrow money from banks, as they prefer to lend to Companies rather than Firms and proprietorships.
Payment of tax is only on the net profit, the taxable net profit arrived after offsetting all types of expenses, salary to directors, reimbursement, etc, which reduces the net taxable income drastically and the result is a minimal or lower tax on the company Net profit.
Raising money from Public:
Limited companies can raise a large amount of capital from the public by issue of shares and deposits. Private companies raise capital from issues of debentures, private placement, etc.
Registered Company Wins:
When it comes to goodwill to the general public and other stakeholders, registered companies obviously win out.