Wednesday, November 13, 2024
Wednesday, November 13, 2024

Why Do You Need to Incorporate a Business?

by Swati Raghuwanshi
Incorporate a Business

India is home for thousands of businesses, especially after the government has shown its interest in the same through schemes like Startup India and Make in India. Starting any kind of business is very easy, but the difficult part is to sustain the same, in the market in the long run. There are various factors that help in the sustainability of a business, to incorporate a business is one of them. Business incorporation comes up with a number of advantages or benefits which helps in the sustainability of the business. To incorporate a business one must be fully aware about the things which are necessary for the incorporation. Some of the basic things are mentioned below in this blog. You can refer to the same by reading this write-up till the end. This will help you out while incorporating your business.

What do you Mean by “Incorporate a Business”?

The process of forming or incorporating any kind of entity or company is called incorporating a business in India. Business incorporation has been mostly done as per the rules and regulations given under Companies Act of 2013. It is a kind of registration with the competent authority of law. After this business will be recognized by the government of India. This helps the business to achieve the milestone in the business world among the competitors in the market. 

Essentials of Business Incorporation 

Some of the key essentials to incorporate a business are mentioned below: 

  • The very first thing is to have a business plan 
  • Choose a name for the entity which is unique and not already in use 
  • Get registration for the name of the entity
  • Must have proper documentation to incorporate a company or entity   
  • Minimum number of key personal 
  • Collect all the requisite details of the key persons of the company 
  • Hire a professional who can complete the incorporation procedure for your business 

Choosing a Right Business Structure 

There are many types of companies mentioned under the Companies Act of 2013. In India, there are several options for business registration depending on your goals, some of them are mentioned below:  

  • For those looking to establish a broader business presence, a Private Limited Company Registration is suitable. 
  • If you’re a sole entrepreneur wanting the benefits of a corporate entity, you can consider the One Person Company Registration
  • There’s also the Section 8 Company Registration, designed for those setting up non-government organizations. 
  • If you’re starting a business in partnership, the Limited Liability Partnership Firm is a great choice, it’s an updated form of partnership offering corporate-like benefits. 
  • For those planning a large-scale venture with substantial investment, the Public Limited Company option is available. 

What are the advantages to Incorporate a Business? 

Some of the key benefits or advantages to incorporate a company or business are mentioned below: 

Secure Your Assets

When you incorporate a business, it shields the personal belongings of the people involved in the company from legal troubles and debts. This safety comes from the idea of limited liability, which is a rule for incorporated entities. Members of the company are responsible only to a certain extent. They’re liable only for the percentage of shares they own in the company. This protection of personal assets is one of the advantages of setting up a business in India.

Gain Tax Breaks

According to the Income Tax Act of 1961, there are different ways for registered companies to save on taxes. These come in the form of exemptions and deductions. If your company is a section 8 company, you may get more benefits. For those entities wanting to benefit from tax deductions on donated amounts for a good cause, it’s advised to get 12A and 80G registrations. Only with these registrations can you qualify for benefits related to donations.

Growth of Businesses

To incorporate a business means attracting consumers as well as investors towards your business. Because incorporation leads to reliability and credibility in the market. This increases trustworthiness and people start attracting towards your business. This helps in the growth of the business which indirectly makes a business successful. 

Transfer of Shares 

In some types of entities it’s very easy to transfer shares, this will help the business to raise funds by issuing the shares. This will not only help the company financially but socially as well. When people buy shares of any company they become interested in the same hence this will make a company social in a way.  

Miscellaneous Benefits 

Some of the common miscellaneous benefits to incorporate a business are: 

  • Transparency 
  • Trustworthiness 
  • Perpetual succession 
  • Brand value 
  • Common seal 
  • Easy registration procedure 
  • Less incorporation cost 

How to Incorporate a Business? 

For every individual who is in the business world either directly or indirectly, must be aware about the procedure to incorporate a business. Given below is the step by step procedure to incorporate the same: 

  • Choose Your Business Structure
  • Name Your Business
  • Obtain Director Identification Number (DIN) and Digital Signature Certificate (DSC
  • Apply for the proposed business name through the MCA’s RUN (Reserve Unique Name) web service.
  • Collect all the documents that are necessary for the business incorporation 
  • After the name of the company is approved, file the application for incorporation of the business 
  • Provide necessary documents, such as the MOA, AOA, and forms with required details.
  • Make the payment for the incorporation fees as per the authorized capital of the company.
  • After the application is submitted, it will be verify by the ROC
  • After the proper verification, if everything is as per the law certificate of incorporation will be issued 

Difference Between Incorporated and Unincorporated Business

In India, forming a company online creates a separate legal entity regulated by the Companies Act of 2013. The number of members depends on the chosen entity type. Companies are responsible for their own actions, with liabilities distinct from their members. Share transfer is possible, and there’s no direct employer-employee relationship between the entity and its members. Managing operations is generally smooth, with companies having perpetual succession. Powers and duties are outlined in the objective clause. Dissolving a company requires following a proper procedure and compliance with the Registrar of Companies, involving specific paperwork and criteria.

In India, certain offline business structures lack a separate legal identity and typically need one or two members. Governed by laws like the Partnership Act 1932 and GST Act of 2017, they don’t bear individual liability for their actions. Unlike incorporated companies, these entities can’t transfer shares, operate with a direct relationship between members and the entity, and have unpredictable management and operations. They lack perpetual succession and have simpler dissolution processes without specific compliance requirements.

Conclusion

To incorporate a business offers numerous advantages. These advantages include providing a structured and legally recognized platform that not only shields personal assets but also brings tax benefits and credibility in the market. It fosters growth, enhances transparency, and allows for the smooth transfer of shares. It attracts investors and fosters financial and social growth. With clear steps to follow and different business structures to consider, the incorporation process becomes a vital step toward sustainability and success of the country. Moreover, the distinction between incorporated and unincorporated businesses underscores the importance of legal identity, liability, and operational frameworks. It’s evident that the decision to incorporate significantly impacts the functioning, liabilities, and possibilities for growth in the Indian business landscape.

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