ADVANTAGES OF INCORPORATING COMPANY IN INDIA

A company can be defined as an artificial person, invisible, intangible, created by or under law, with
a distinct legal personality, perpetual succession, and a common seal. It is not affected by the death,
insanity, or insolvency of an individual member. Let’s look at some of the biggest advantages of
registering a company instead of a Proprietorship Firm or Partnership Firm.

1. Creates a Separate Legal Entity: A company is a legal entity which has real existence. It is an
artificial person created by law, its existence is separate from its directors and shareholders. It
is a juristic person established under the companies act. The word “juristic person” denotes
recognition of an entity as a person by law. It can sue and be sued on its own name. An
incorporated company enjoys its own rights, bears it own liabilities and handles its own legal
proceedings. On incorporation, a company acquires its own personality. It has a wider legal
capacity, as a company can own its property and incur debts, by these the individual company
members owe no liability towards the company’s creditors for debts.
2. Company has Perpetual Succession: Perpetual succession means continuing or enduring
forever, the company is everlasting. It denotes continuous existence of a corporation or company
till it is dissolved legally. Perpetual succession is an important factor. As stated previously, it is a
separate legal entity unaffected by death or departure of any member. No matter whatever
changes; membership, members, staff, shareholders, nothing of this sort is capable to affect its
existence, once incorporated, it remains alive complying to the Companies Act.
3. Limited Liability: Limited Liability is a legal responsibility towards a limited amount of debts.
The liability of the members with reference to company’s debts are limited i.e.; limited to the face
value of the share purchased by them. An exception to this is when, the members have
contractually agreed to unlimited liabilities, the terms & conditions might vary. Such companies
are called unlimited companies.
4. Free & Easy Transferability of Shares: Shares of a company is limited by the shares purchased.
It is transferable by a shareholder to another person. Shares can be transferred to anyone the
shareholder chooses. A signed copy of the share transfer form would be handed over to the buyer
of shares along with share certification. Technically, there are no restrictions on transfer of
shares in a public limited company. Hence a share holder could transfer the shares to any person
he wishes to. Securities or other interest in a public limited company is freely transferable.
However, any contract or agreement in respect of transfer of securities is enforceable as a
 contract. In case of private limited companies, the law allows private limited companies to
impose restrictions on the transfer of their shares. There is never a complete ban on shares.
5. Owning property: A company could acquire, own, enjoy and alienate property on its own name.
A shareholder is not eligible to claim the company’s property, as they are not owners of the
company. A shareholder merely has an interest in the company arising under the articles of
association of the company, measuring a sum for liability. The shareholder does not have rights
to participate in the profit of the company. However, it is subject to the contract contained in the
articles of association. Therefore, property of the company is not the property of the individual
member.
6. Can Sue or Be Sued: A person can take legal action on his / her name. Similarly, company as an
independent legal entity could take legal action in its own name against another person. This
includes company name change, mergers or demergers.
7. Dual Relationship: The company could form an agreement or contract with any individual
member. It is possible for a person to take control of the company operations and remain as an
employee of the company. Thus, a person can be a shareholder, creditor, director and employee
of the company at the same time.
8. Borrowing Capacity: Companies enjoy the privilege of borrowing funds. They have the capacity
to issue and accept debentures from the public. Company invites the attraction of banking or
other financial institutions too, to render a larger financial assistance.
9. Equity Raising: A company is the only type of legal entity which can help the promoters raise
equity funding from Angel Investors, Private Equity Firms and the Stock Exchange. A private
limited company would suffice for raising equity funds from Angel Investors and Private Equity
Investors. On the other hand, in case of listing or allotment of shares to more than 200
shareholders, a Limited Company would be required.
10. Tax: Some of the noteworthy benefits available to companies are discussed as under:

1. Tax rate reduced to 25% from 30%:

With effect from financial year [“FY”] 2018-19, the income tax rate stands reduced to 25% (plus
applicable surcharge and cess) for domestic companies with total turnover or gross receipts not
exceeding Rs. 250 crores for the year ended 31 March 2017.
2. Provisions of Minimum Alternate Tax [“MAT”] are made inapplicable to certain foreign
companies:
The provisions of MAT are made inapplicable to foreign companies that have opted for
presumptive taxation. Foreign companies that are engaged in the business of shipping, air
transport, oil exploration, and turnkey construction projects are benefited by this.

3. Transfer of certain capital assets not treated as transfer for income tax purposes:
For the purpose of Income Tax, sale, relinquishment or extinguishment of rights in assets would
be considered as transfer of assets. Further, any gains arising out of such transfers to a person
who is transferring such capital assets, is offered to tax as capital gains. However, in order to
facilitate merger of uneconomic units with financially sound Indian Companies, in the interest of
increased efficiency and productivity, certain transfers are specified that are not to be treated as
transfer for income tax purposes. Some of the significant transactions specified in this regard are
discussed as under:

1. Transfer of capital asset by a parent company to its wholly owned Indian subsidiary
2. Transfer of capital asset by a wholly owned subsidiary company to its Indian holding
company. Provided, conditions prescribed in this regard are satisfied.
3. Transfer of capital asset in a scheme of amalgamation by amalgamating company to
Indian amalgamated company.
4. Transfer of capital asset in a scheme of merger by demerged company to Indian resulting
company
5. Allotment of shares of Indian amalgamated company to the shareholders in the
amalgamating company in lieu of their amalgamation
6. Transfer of capital assets by a private limited company or unlisted public company to a
limited liability partnership [“LLP”] in course of conversion of company into LLP.
However, the same would be subject to satisfaction of certain conditions prescribed in
this regard.

4. Deduction on expense incurred in relation to setting up/ extension of a business:

Any expenditure incurred by a Company for setting up of a business or for extension, is eligible
to be amortised and claimed as an expense over a period of five consecutive years beginning
from the year in which the business commenced/ expansion of business is completed.
This enables a Company to defer the claim of expenditures incurred towards preparation of
project report, feasibility report, legal charges for drafting agreements, incorporation fee etc.
over a period of 5 years. However, such claim shall be restricted to 5% of capital employed by
the Company.
Further, any expenditure incurred by a Company in course of amalgamation or demerger could
also be amortised and claimed over a period of five consecutive years.

5. Deduction specific to the nature of the business of the Company:

Tax incentives are generally introduced to encourage businesses to venture into certain sectors
that are significant for the economic development of the nation. Any company engaged in such
specified business, would be eligible for tax holiday or deduction with respect to the profits
earned from such business for a period prescribed in this regard. However, it is important to
note that many of such incentives introduced earlier are now in their sunset period.
Indian Companies engaged in developing, maintaining and operating infrastructure
facility, conducting scientific and industrial research and development etc. are some of the
Companies that are benefited by this.

6. Deduction specific to contributions made:

100% of amount contributed, by medium other than cash, to any political party or electoral trust
is allowed as a deduction to a Company for tax purposes.

7. Reduced rate of tax on dividends received from certain companies.

Dividends received from a foreign company wherein the Company holds 26% or more shares
are subject to tax at a reduced rate of 15%.
Further, the dividends received from such companies are to be reduced from dividends
distributed/ payable in computation of Dividend Distribution Tax [“DDT”], which in turn reduces
the DDT liability.