Game of Words: View vs Counter View 3.09

                Incorporation of Businesses

The process of incorporation, especially in India, is considered as a phase that is full of expenses, time consuming and extremely tedious in nature, but if done properly and in the right industry, it can work wonders for the business. Speaking in standardised terms, the definition of incorporation is, “the process of constituting a company, city, or other organization as a legal corporation”. Most businesses, if not all, take a lot of time to consider registering their companies, as it entails it’s own share of pros and cons, depending on aspects such as which industry it is operating in and how the business models works.

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In India, companies that have decided to incorporate themselves avail the benefits according to the industry they operate in. Ayush Jain, a student of 1BBA B at SJCC, disclosed information about the benefits he received after incorporating his marketing agency. One of the biggest advantages of registration according to him, is that of the creation of a separate legal entity. He believed that the company as well as his own actions should not be held accountable to one another. This also applies to the limited number of employees that work for him. This is what makes his company independent.

 The aspect that makes Ayush’s business unique and more independent due to the process of incorporation is the ability to hold it’s own assets in the eyes of the law, and that the members and owners have no right to claim the assets whatsoever. This also shows that all the benefits of incorporation are connected and interlinked to each other. As the company can be independent and hold assets, it also can sue by itself. But this benefit can also be a disadvantage, because it can also be sued. To simplify and understand this point, Ayush gave me a simple example. He said if his company breaks a certain law or breaches a patent of another company, he can be sued by the company in question or the government for breaking the laws and this can take place the other way around as well. 

Moving on, coming to the biggest reason why Ayush chose to incorporate his company and why most companies decide to see through this process, is to obtain an easier access to capital. This ability to raise money faster helps the business grow and develop much faster, as compared to a normal fund raising company. These are some of the benefits that are the main reason why Ayush Jain decided to incorporate his marketing agency.

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Most of the businesses that are established  in India are small and especially in the rural areas, they take the form of shops or distribution centers. Keeping this in mind, I spoke to Naizal, the owner of Home Needs provisional stores, who went on to speak about why he chose not to incorporate his company. 

The first and maybe the biggest reason as to why he didn’t incorporate his company is the cost that is involved in doing so. There are a lot of aspects of incorporation that don’t fit the profile for a small business( for example, preparing articles of incorporation etc.). The fees that is involved in incorporation of a company is quite a large sum and cannot be afforded by everyone. This is one of the reasons why Naizal decided incorporation is just not something he wants to see through. 

Another major reason as to why he avoided the process of incorporation is because of the lack of privacy his company would then get. This is because of the fact that if a company is incorporated, loads of documents such as tax returns and accounting records among others, have to be mandatorily disclosed. Because of this,  there are possibilities that the company will have to have a double taxation paid. Further, incorporation is also a very difficult and tedious process if the size of the company is relatively small.

Written by:

Abhinav