ADVANTAGES AND

DISADVANTAGES OF
INCORPORATION
 ADVANTAGES OF INCORPORATION

 INDEPENDENT LEGAL ENTITY

A company is a distinct legal or juristic person and is independent of its members. A company
remains free from the adversities of its members.
CASE: Salomon v Salomon & Co. Ltd. (1897)

 LIMITED LIABILITY
The liability of the members of a company can be limited and as a director or shareholder of the
corporation, in most circumstances you cannot be held personally responsible for the corporation’s
debts or obligations.

 PERPETUAL SUCCESSION
The death or insolvency of individual members does not affect the existence or continuity of the
company and it will continue to exist till it is wound up in accordance to the provisions of the
Companies Act.
CASE: Re Noel Tedman Holdings Pty Ltd (1967) Qd R 56
 INFINITE MEMBERSHIP
There is no limit to the maximum number of members in a company and so large number of people
including juristic ones can combine and contribute to the formation and functioning of the company.

 MOBILIZATION OF HUGE RESOURCES

As there is participation of large number of people in this form of business, it becomes easier for huge
amounts to be collected for the undertaking of business ventures.

 EASE IN CONTROL AND MANAGEMENT

The company law provides for the management of companies through elected representatives known
as the Directors of the company.

 SEPARATE PROPERTY
The property of the company is not the property of the shareholders and so no member or director can
use the properties of the company for their own personal advantage.
CASE: Macaura v. Northern Assurance Co. Ltd. (1925) AC 619
 DISADVANTAGES OF INCORPORATION

 FORMALITY AND EXPENSE

Incorporation of a company involves a number of legal formalities & expenses and the affairs and
working of a company have to be conducted strictly in accordance with the applicable legal
provisions.

 LOSS OF PRIVACY
Returns, resolutions and documents of the company are to be filed with the Registrar of Companies
and general public can, on payment of prescribed fees, inspect any of the documents filed by a
Public company.

 SEPARATION OF CONTROL FROM OWNERSHIP

The company functions through the representatives of the shareholder, the directors. Members do
not have immediate or active and complete control over the company’s working.
 DETAILED WINDING UP PROCEDURE
The winding up of companies, provided by the Companies Act, is more detailed, time consuming and
expensive than what is applicable to other forms of business.

 GREATER PUBLIC ACCOUNTABILITY

Companies, in particular a Public company has great public accountability and can not ever act against
public interest.

 POSSIBILITY OF FRAUD
Control of economic resources is in the hands of a few and in spite of public accountability, it is
possible to defraud those who have contributed funds to the company like shareholders or creditors.
This can be done by diverting funds of the company to their private channels.