2022/LLB/B231006/DAY.
( Viola)
QUESTION: Evaluate the advantages that arise with Incorporation and it's
disadvantages.
Advantages
Artificial legal personality: the company doesn’t have a physical form like
a normal being, it only exists in the eyes of law, with property, its rights to
sue and be sued, liabilities, obligations, and duties. In state training Co of
India v C.T.O Court observed that, the corporation has no physical existence
but a mere obstruction of law
Limited Liability: Shareholders' personal assets are protected in case of
business debts or liabilities. The members of the company are not liable for
its debts because the company is leaving its own business life, having its
own assets, rights, duties and obligations. In Salomon v Salomon, Lord
Machaghten emphasized that at Incorporation, the company becomes a
legal entity Capable of a separate existence and liable to pay its own debts
Common seal, the company being an artificial person doesn’t have hands
to sign like any human, instead, the company has its common seal which
acts as common signature. Any person or agent contracting on behalf of the
company must have the company seal
Perpetual Existence: Companies continue to exist even if shareholders
change. Or even upon their death, the company continues to survive. In
Meat Supplies(Guidford) Ltd (1966). 3 ALLER 320 it was observed
when while in a meeting all the members of the company. were killed by the
bomb but the company continued to survive.
Separate property, all the assets and property belong to the company as a
corporate body and no one can claim over them
Centralized Management: the company has clear organizational structure
and decision-making processes which set base for effective business
transactions and boost the company’s credibility.
Capacity to suit, the company being a corporate body the capacity to sure
and be sued in its own name
Transferability: the Companies Capital is divided into small units called
shares. Which are shared among the shareholders Shareholders can easily
transfer ownership incase it is a public company and there some restrictions
to private companies. Section 44 of the Company Act provides that
shares, debentures or other interests, are movable property of the company
*Disadvantages:
Complexity and Cost: Incorporation involves legal fees, registration, and
compliance costs, which can be expensive to do and maintain.
Company not a citizen, much as the corporate company is recognized by
law as a legal person it has no soul or physical existence hence not
recognized as a.citizen, in State training Co of India v C.T.O, Court held
that the corporation has no physical existence but a mere obstruction of law
Fraud and misconduct, incase the company’s share holders use the
company name fraudently, the corporate principal can be lifted. In Gilford
Motor co v Home, Court held that the company was restricted from acting
because it’s principal shareholders had used it escape restrain..
Double Taxation: Corporations are taxed on profits, and shareholders are
taxed on dividends, potentially increasing overall tax liability.
Regulatory Requirements: Companies must comply with strict laws and
regulations, which can be time-consuming and costly.
Loss of Personal Control: Shareholders may have limited control over
business decisions, as decision-making authority rests with the board of
directors.
Public Disclosure: Financial information and business operations become
public, potentially compromising confidentiality.
Potential for Litigation: Companies are more vulnerable to lawsuits, which
can be costly and damaging to reputation.
