Home / Section 25 Company - Benefits & Drawbacks
Section 25 Company - Benefits & Drawbacks
Before taking any decision in respect of incorporating a Company for carrying any business, it is necessary to analyze the benefits and drawbacks of the Company, which are outlined below:
Benefits of Section 25 Company
- Recognition: Section 25 Companies are recognized under various scheme carried on by the Central and State Government for charitable and religious purposes and are given special treatment under the said scheme
- Foreign Funds: Section 25 Companies are recognized under Foreign Contribution Regulation Act for receiving foreign contribution and funds for carrying on charitable and religious activities. Since these companies are subject to regulatory control, therefore they are preferred in comparision to other form of organizations.
- Liability: A Company exists as a separate legal entity from your personal life. Both company and person who own it are separate entities and both functions separately. Liability for repayment of debts and lawsuits incurred by the Company, lies on it and not the owner. Any business with potential for lawsuits should consider incorporation. Incorporating will offer an added layer of protection
- Perpetual Succession: An incorporated company has perpetual succession. Notwithstanding any changes in the members of the Company, the Company will be a same entity with the same privileges, immunities, estates and possessions. The Company shall continue ton exist till its wound up in accordance with the provisions of the relevant law
- Easy Transferable Ownership: The shares and other interest of any member in the Company shall be a movable property and can be transferable in the manner provided by the Articles, which is otherwise not easily possible in other business forms. Therefore , it is easier to become or leave the membership of the Company or otherwise it is easier to transfer the ownership
- Separate Property: A Company as legal entity is capable of owning its funds and other properties. The Company is the real person in which all the property is vested and by which it is controlled, managed and disposed off. The property of Company is not the property of its shareholders
- Taxation: Another main benefit to incorporating is the taxation of a Company. Companies are often taxed at a lower rate and are provided with better taxable benefits as compared to other forms of business organization.
- Raising Money: A Company can sell shares of the Company to the public or can accept deposits from public and can therefore raise money easier than other business structure types. The modes of financing business carried on by company are numerous
- Recognized Under Tax Laws: Section 25 Companies are recognized under Income Tax Laws for exemption from payment of tax on income generated from rendering services for charitable and religious purposes
- Capacity to sue: As a juristic legal person, a Company can sue in its name and be sued by others. The managing director and other directors are not liable to be sued for dues against the Company
- Better Governed: Companies are governed by Companies Act, 1956 and have to follow various regulatory procedures during the course of its governance, moreover they have to comply with stringent disclosure norms which let to better governed organizations and creation of value for owners.
Drawback of Section 25 Company:
- Costly to Form and Run: In comparision to other business forms, it is costly to incorporate and run a Company. Lot of compliances is required to be carried every year and therefore the cost of running is also high in comparision to other forms. Moreover heavy fines and penalties has been prescribed for the non compliance.
- Regulated form of Business Company is highly regulated form of business , as lot of compliances like maintenance of various registers , holding of meetings are required to done each year and for undertaking various activities or decision , it is necessary to obtain the permission of specified number of shareholders and in some , of regulatory authorities also. The Companies Act 1956 also prescribes various provisions how the company will be managed and run.
- Audit and Financial Disclosure It is necessary for all the companies to get its accounts audited annually and to prepare its balance sheet and profit and loss account in accordance with the prescribed guidelines. Lot of information as to the financial condition of the business is required to be disclosed and moreover, all such documents are available for public inspection, therefore it is not possible to maintain financial secrecy of the business.
- Lack of Control In case of companies, the ownership and management is divorced, in order words, it is not necessary the people owning the company are also managing it. The Company is managed by Directors, which are appointed by the shareholders. The Directors are responsible for running and managing the company and taking key business decisions and shareholders don’t have any direct control over the company and therefore they are not much aware of whats happening in the company.
- Long Closing Proceedings It is generally not easy to close the company as compared to other forms of business, the procedure to close is long and involves compliance of various formalities, at times it takes 1-2 years to completely wind-up the company. Moreover in certain cases, it is necessary to take the permission of the High Court to close the Company.
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