It is the choice of the business owner whether he or she wants to incorporate a business or not. With the choice it also depends upon the type of business and where it is going to work. Sometimes business owners choose to incorporate their business because of the various benefits of incorporating a business only. But that is not the correct method of choosing between incorporation a business or not. One must study or research before choosing between them. Because there are various factors that need to be considered, not just the benefits of incorporating a business.
Incorporated Business V/S Unincorporated Business
Any business can work either incorporating its entity or without incorporation. It depends on various factors like whether a business is going to work on a smaller level or it will work interstate, type of business, choice of business owner etc. There are multiple benefits of incorporating a business but the same goes with the unincorporation of the business. Hence it is really important to compare both of them and then make a choice. Some of the key points of comparison between them are:
| Incorporated Business | Unincorporated Business |
| There process of incorporation is online | The process is mostly offline |
| Separate legal entity | They do not have separate legal entity |
| Number of members depends on the type of of entity one is choosing | Mostly minimum one or two members are required to such kind of entities |
| These are governed by the Companies Act of 2013 | There are different laws which are applicable on such entities like Partnership Act, GST Act etc |
| They are liable for their own acts | They are not liable for their own acts |
| There liability is distinct from its members | There liability is not distinct from its members |
| Transfer of shares is possible | Transfer of shares is not possible here |
| No agent principal relationship between the entity and its members | Agent and principal relationship between the entity and its members |
| Management is easy and operation went smoothly | Management is very messy and operation does not went smooth sometimes |
| They are having perpetual succession | They are not having perpetual succession |
| Powers and duties are in the objective clause of the entity | Powers and duties are mostly in the hands of the members of the entity |
| Dissolution is not easy | Dissolution is very easy |
| Proper procedure of dissolution | There is no such procedure to dissolve the unincorporated entities |
| Needs to furnish compliance with the registrar of the companies | No such compliances are there |
Key Benefits of Incorporating a Business
Some of the key benefits of incorporating a business are mentioned below:
Protection of Personal Assets
Business incorporation protects the personal assets of the members of the entity against lawsuits as well as creditors. It is because of the limited liability concept which is applicable on the entities which are incorporated. Members of the company and their personal assets are only liable to a certain extent as they are having limited liability. They will be liable only to that percent of the shares which they hold in the company. This is one of the benefits of incorporating a business in India.
Tax Benefits Under Income Tax Act of 1961
Under the Income Tax Act of 1961 there are various tax exemptions as well as tax deductions available to incorporated entities. One can use them to take the benefits of those exemptions as well as deduction. Even these benefits are more in case your entity got registered as a section 8 company. It is suggested to all those entities who want to take benefit of the tax deduction on that amount which is donated for some good cause to obtain 12A and 80G registration. Only after this you are eligible to get benefits for the donations.
Transparency in Business
After the incorporation of the business mostly every information regarding the respective business is available on the Ministry of Corporate Affairs website. Anybody who wants to deal with the company can check the available information regarding the company from there. This helps the government to keep transparency in the business world. Transparency opens many doors for a business. It builds customers, investors etc. It is another one of the key benefits of incorporating a business.
Reliability and Credibility
It is really difficult to trust the customers on the businesses which are run by individuals through its proprietorship firm. This is because such kinds of businesses can wind up anytime. They do not have separate legal entities, limited liability, transparency etc. hence it is a little bit difficult to trust such entities. On the other hand, incorporated entities are the ones who are directly under the supervisor of the government. They are incorporated after proper verification. All the related documents are in the public domain. Therefore their credibility and reliability in the market is more. Thus it is suggested by looking at the various benefits of incorporating a business, to any kind of business after incorporation only.
Easy Trust Building
Whether we are talking about customers or investors, both believe more in an entity that is incorporated. Reasons are already given in the above points like they come directly under the ambit of the government, they are supervised from time to time, their information is in the public domain etc. All this helps the customers as well as investors to search each and everything regarding the entity. And this will result in trust building. And trust building is really important for any kind of business to grow and develop in the market.
Online Incorporation Process
To incorporate a company one does not need to go anywhere. The entire process of incorporating an entity is online. While sitting at your comfort place you can complete the application for the registration and submit it. In case you think that you don’t have time for all this, you can find professionals easily in the market. They will make your work very easy with less investment.
Less Formalities
There is a very easy five step process to incorporate a business. One can follow the same and incorporate his or her business. These five steps involves the following:
- Collect all the documents
- Visit Ministry of Corporate Affairs official website
- Register a unique name for your business
- After the name approval file the business incorporation forms and submit it
- After verification one will get the incorporation certificate
Miscellaneous Benefits of Incorporating a Business
- Easy fundraising
- Perpetual Succession
- Brand Value
- Customer attracts
- Common seal of the entity
- Distinct Identity
- Various options of incorporation
- Tax deductions and exemptions
- Less cost
Conclusion
There are multiple benefits of Incorporating a business. It can significantly enhance the stability and growth of a company. These advantages include safeguarding personal assets against legal issues, tax benefits and deductions under the Income Tax Act, increased transparency through public accessibility of business information, enhanced reliability and credibility due to government oversight and proper documentation, trust-building with customers and investors, a convenient online incorporation process, minimal formalities, easy fundraising, perpetual succession, improved brand value, customer attraction, and a distinct identity for the business. With various options for incorporation, cost-efficiency, and the opportunity to benefit from tax deductions and exemptions, incorporating a business not only ensures legal protection but also opens doors to growth and development in the market.
