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You cannot know what an incorporated company is without knowing what incorporation is first. Incorporation is the legal process of registering a corporate entity or company known as a corporation. This legal entity has the right to own assets and income separate from the owners and investors.
Incorporating a business, while can be a tedious process, has its advantages over other form of corporate structures. Doing so can actually help the company in their expansion, operational efficiency, and safeguard against financial obligations, among others.
Before you pursue the incorporation of company in India, here are some of the things you should know.
A Corporation is Embodying the Concept of Limited Liability
Being the owner or investor, you do not want to be burdened with a large amount of financial obligations when running your business. You would want some kind of protection against potential financial losses.
This is a concept covered by limited liability. It means that the corporation cannot go against the personal assets of its owners and investors when paying off debts, no matter what they may be. These liabilities could be loans, credit cards, mortgages, and revolving credit, among other others.
The corporation can only use the exact amount of investment that the owners or investors have infused in its capital to settle financial matters.
Shareholders are the Owners of a Corporation
Shareholders have the ownership in a corporation. Upon formation, a corporation issuing a certain number of shares, which potential investors or shareholders can purchase or subscribe to.
These stocks can be owned by one or more shareholders, just take note of the publicly-listed corporations. They are selling their shares in stock exchanges, which means many can buy ownership to these corporations. Depending on the class of shares, these shareholders have the right to vote on company matters.
One way of selling your shares in a public trade platform is by introducing the stocks during the initial public offering. This process requires a lot of market research, board discussion, and advice from financial experts before going through with it.
This is a good way of raising funds for your capital, especially if you are seeking to expand your business.
Be Ready for Double Taxation
As mentioned, a corporation is a separate legal entity. This means that its earnings are being taxed under a specific tax regime. It is the duty of the corporation to give back to the government for allowing it to operate.
When it distributes profits to shareholders, these are being taxed as dividends. This is seen to have substantial financial impact on the shareholders depending on the amount of revenues earned and the total dividend distribution.
A Corporation’s Lifespan is Not Dependent on Its Owners
A corporation, given that it is a separate entity, can have a long lifespan because it is not dependent on the lifespan of its owners and investors. A corporation usually ends only when the board of directors and shareholders voted to dissolve the business.
Remember that shares are transferable to other people and it can be transferred via public stock exchange and private transactions.
This is the main reason why there are many corporate giants that are still existing today after operating for over many decades already.
Setting the Plans
Make sure that your plans for your corporation have been laid out carefully. Always consider the potential setbacks so you can address them immediately. Set your goals at the same time to remain focused always. Let these goals pull you to the direction of success. Knowing what is incorporated company is not enough, you must take action as well.
If you are looking for an accounting firm in India, contact 3E Accounting India today. Our excellent team of hard-working members are happy to help you in every step of the way.
