Out of 4 startups born every day in India, 75% register their startup as Private limited company. This blog is intended to remind the importance of incorporating the startup. Yes, they say, on incorporation, a company acquires legal entity shape, but it’s not just that. In this blog, we will look into the Top 7 reasons to incorporate the startup as Private Limited Company. As entrepreneurs, it is wise to utilize the right information at our disposal reason being most of the time we are on our own.
- Corporate Personality: The Company is a distinct legal or juristic person independent of its members (directors). From the date of incorporation mentioned in the certificate of incorporation, subscribers to the memorandum and all other persons will be capable of exercising all the functions of an incorporated company under the Act and having perpetual succession and a common seal with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name.
- Limited Liability: In the event of the company being wound-up, no member is bound to contribute anything more than the nominal value of the shares held by him which remains unpaid.
- Perpetual Succession: Irrespective any change in the board members, the company will be the same entity with the same privileges and immunities, estate and possessions. The death or insolvency of individual members does not affect the corporate entity, its existence or continuity. The company will continue to exist indefinitely till it is wound-up.
- Transferable Shares: Shares or other interest of any member of a company can be movable property, transferable in the manner provided by the articles of the company. This encourages investment of funds in the shares, so that the members may en-cash them at any time. Thus, it provides liquidity to the investors as shares could be sold on the open market and on the stock exchange. It also provides stability to the company.
- Separate Property: The property of the company is not the property of the shareholders, it is the property of the company itself. The company is the real person in which all the property is vested, and by which it is controlled, managed and disposed of. In the eyes of law, even a member holding majority of shares or a managing director of a company is held liable for criminal misappropriation of the funds or property of the company, if he unauthorized takes it away and uses it for his personal purposes.
- Capacity to Sue: A company can sue in its name and be sued by others. Neither the members of the board nor the team is liable for anything wrong.
- Flexibility and Autonomy: The Company has an autonomy and independence to form its own policies and implement them through Memorandum and Articles of Association.
As an end note, a quick comparison between available entities that a for-profit organization can choose to incorporate