Jun 122021
 

Between corporate form of business and other:

The advantage of the corporate form of business over traditional business is that it discriminates the executive wing from the investor of the fund. The corporate form of business is more flexible, transparent, and user-friendly. An investor may come in or go out as per his option and opportunities available without impacting the normal operation of the business. The advantages to the business to a corporate form of a business are:

  1. Expansion of business: Expansion of business in the case of the corporate form of business is easier as the introduction of and/or exit of a new investor or existing investor is done by simply transaction in shares. Any introduction of capital losses its individual identity and clubbed under the head “SHARE CAPITAL”. Thus, the opening of the new branch, new franchisee, or new department, or new line of business is done by expanding the capital base without impacting the existing operation of the business.
  2. Trademark and copyrights: In the case of a traditional form of the business name is co-exiting with the name of the owner. In the case of the corporate form, these rights are assets of a company tradable like any other form of business.
  3. Loans and other bank dealings: The risk appetite of the bank is different for a company than its owner. Owner liability is limited to the shares held and unpaid by him and thus in applying for a loan with banks and other financial institutions profit and loss of the company become significant and more relevant as the owner will take out any left after being paid as interest.
  4. Business life not impacted by investor: A corporate form of business is always more advantageous with features like perpetual succession. Therefore there is assurance that the business operations can be continued even after the passing of the owner and there is the ease of sale/transfer of business by way of transfer/sale of shares.
  5. Between LLP & company: There is no simple rule of thumb in deciding between the two forms. For example, the LLP form has the advantage with regard to lesser compliances as compared to a Company.
  6. However, w.e.f FY 2019-20, Companies now have the option of paying tax at 22%  as against the tax rate of 30% for LLPs. A cost-benefit analysis would need to be carried out on a case-to-case basis.

How the exiting proprietorship or partnership business may be transferred to a corporate form?

For Incorporating and running either form of business namely, LLPs or Private Limited Companies a minimum of two persons is required.

  • 2 Partners in case of LLPs and
  • 2 Directors and 2 Shareholders(Shareholders and directors can be the same persons).

There can be two possible solutions:

  1. a) The Dealer may include any of his/her family members/close friends to make up the number.
  2. b) Another alternative is including any of the employees as Director and the Shareholder. With regard to Shareholding, a majority of the shares may be held by the existing proprietor in his/her own name and a few (Insignificant number say 1%) shares may be held by the proprietor jointly with the employee.

How to proceed in case the existing name is not available in case of applying for company registration?

In such a case the suggested course of action could be as follows:

  • Apply for Trademark with Trademark Registry and local authorities for the desired name, let’s say – “ Swastik Enterprises”, to display on the premises.
  • Apply for a name with the ROC for some other name. This is permissible.
  • A live example of this is that the Company selling Dominos Pizza uses the Trade Name Dominos Pizza for display in its premises but is registered with the ROC with the name Jubilant Food Works Limited. In such a case “Dominos Pizza” become a trading name in the pizza industry which is also tradable like any other assets.

Sensys

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