what is incorporation of a company?

what is incorporation of a company?

How is a company incorporated?

An incorporation is the legal process by which a company is incorporated. The objective is to separate the assets and income of the company from that of its owners and investors. Constituting a company refers to separating the legal owner or investor of the business from its corporate form.

Which steps are involved in incorporation?

It is the legal way in which the company is incorporated and brought into being. A company is incorporated by drafting an article of incorporation and identifying shareholders. This refers to the act of incorporating a company where two or more individuals, minimum seven for public limited companies, come together for the purpose of doing lawful business after disclosing their names in the memorandum of association and completing the other legal requirements.

How does incorporation benefit your business?

Incorporating your business is important for you because – It saves you taxes Protects you from liability Boosts your business’ credibility Makes capital raising easier Over a lifetime Shareholder transfers private information benefits/advantages of incorporation The directors of a company oversee the day-to-day activities of the business. Their responsibility is to make the best decisions for the company.

Incorporating a company provides shareholders and directors with limited liability. Board members are elected annually. A maximum number of directors is appointed for each company. Company directors are not personally liable. Through incorporation, a company’s management and directors can contribute to growth without directly impacting shareholders and owners’ personal finances.

We’ve compiled ten reasons you should start a business.

Managing Your Own Business By incorporation:

shareholders and directors are protected against liability through a shield known as Corporate Veil. It is beneficial to the growth and development of the company for its owners, directors, and shareholders to incorporate the company in order to minimize many risks.

The business personality:

By incorporation, a company can establish its own legal entity, which is independent of and distinct from that of the stockholder, the owners of the firm, unlike a partnership.

Limitation of Liability:

Section 34(2) of the Company Act states that if a company is dissolved, its members are solely liable, but if the company is incorporated, its members must contribute with a nominal share and few other liabilities. One of the main reasons companies incorporate is to protect themselves.

They have a perpetual succession plan:

As long as the organization continues even when the owner dies, is bankrupted, goes insane, or has shares transferred to a new entity, the organization continues. Therefore, the organization obtains immunity. Until the company is shut down, the organization will continue to operate.


In accordance with the Companies Act Section 82, any interest and share of the company that is transferable and movable is movable property. It has the disadvantage of generating investment in stocks and providing liquidity to investors. Whenever they like, members can sell their shares in an open market or on the stock market.

Individually owned property:

An incorporated company can hold assets and funds as a legal entity. The company’s assets are treated separately from the shareholders’ properties. Legally, the company is tasked with managing, disposing of, and controlling the property. Shareholders who misuse the property of the company for their personal gain are liable to criminal misappropriation.

They can sue the company for criminal misappropriation.

Incorporation transforms a company into a legal entity able to sue other companies and people, as well as other companies. It is possible to sue certain shareholders in the name of the company, but not others, such as the managing directors.

There is flexibility and autonomy in the company.

Generally, incorporated companies are autonomous and independent enough to determine their own rules and policies, as well as how to implement them. They are nevertheless bound by equity rules, general legal principles, and good conscience.

Makes business credible

which goes beyond finances. Unincorporated businesses seem more unstable than incorporated businesses. It is critical to ensure stability and credibility for the company by adding “Inc.” or “Ltd.” to its name.

Other concerns :

One of the major reasons for incorporation is tax benefits. Taxes on profits of corporations are reduced by qualifying business expenses. The financial goals of an incorporated company may also be met by deducting salaries, health benefits, etc. Corporations are taxed differently and have advantages and disadvantages.

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