LLB 204: Advantages and Disadvantages of Incorporation

Lecture 9,10
Incorporation of a Company
Advantages Disadvantages
Advantages of Incorporation
1. Independent Legal Entity
Section 9 provides that from the date of
incorporation the subscribers to the memorandum
and other members shall be a body corporate by the
name contained in the memorandum which is
capable of performing all the functions of an
incorporate company and having perpetual
succession and a common seal.
2. Limited Liability
3. Perpetual Succession (Section 9)
4. Transferability of Shares (Section 44)
Section 44 provides that the shares, debentures or other
interests of any member in a company shall be movable
property transferable in manner provided by the articles of
the company.

5. Infinite Membership
6. Mobilization of Huge Resources
7. Separate Property
The property of people of the company is its own
property not of shareholders.
Case: R.T Perumal v. H. John Deavin AIR 1960
Mad. 43
Madras High Court observed that no
member can claim himself to be the owners
of company’s property during its existence or
in its winding up.
i.e. no member or director can use the
property of the company to his own
perpetual advantage
8. Ease in Control and Management
The company law provides for the management
of companies through the elected representatives of
the members known as Directors. Therefore, no
shareholder is to worry about the management of
the company. The directors may include
professionals thereby enabling the company to be
managed professionally and more efficiently.
Disadvantages of Incorporation
1. Formality and Expenses
Certain books and registers are compulsorily
required to be maintained which definitely
involves certain expenses. Approval and sanctions
of the tribunal and the Central Government, the
registrar of companies and other appropriate
authority, as the case may be, are required to be
obtained for corporate activities. Meetings of
Directors or shareholders are to be held and
conducted in accordance with the provisions of
the Act.
2. Loss of Privacy
 Various returns, resolutions and documents are required
to be filed with Registrar of Companies.
 The Office of Registrar of Companies is a public office.
 Any member of the public company on payment of
prescribed fees, inspect any of the documents filed by a
public company with Registrar of Companies.

3. Detailed Winding up Process/Procedure

4. Control by Few
5. Greater Public Accountability
6. Possibility of Frauds