Introduction to Incorporation of Company (Merits and Demerits)

1. Explain the advantage of incorporation of a company OR, Enumerate and explain salient features of a company.

Following are the advantages or the salient features of a company:

Separate legal existence
Company has nationality/residence
Limited liability
Perpetual succession
Easy transferability of shares
Separate property
Capacity to sue and be sued
Professional management
Democratic set-up
Capacity to raise finance
Common seal

Separate Legal Existence:

A company is a legal person in the eyes of law. It is an artificial person or a juristic person. A company is independent and separate from its members, and the members cannot be held liable for the acts of the company, even when a particular member owns the majority of shares. This was held in the case of Solomon v. Solomon.

Salomon’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person holds all the shares in the company i.e. a company has separate legal existence. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In each case, the company is a separate legal entity.

In case of a partnership firm, it has no separate legal entity. Partners are responsible for every act.

Company has Nationality/Residence:

Company is governed by the laws of the land, in which it is incorporated. In TDM Infrastructure Private Limited v UE Development India Private Limited, Arbitration Application No. 2 of 2008, the Supreme Court of India held that a company’s nationality is determined primarily by its place of incorporation, and is not affected by the company’s “central management and control” being located outside India.

Though it is established through judicial decisions that a company cannot be a citizen, yet it has nationality, domicile and residence.

Limited Liability:

During winding up of the company none of its members is legally bound to contribute to anything more than the nominal value of shares held by the member which still remains unpaid. If the corporation is sued or goes bankrupt, the assets of the company will be at stake, but not the personal assets of the members such as savings, a home or a vehicle.

In Re. London & Globe Finance Corp., (1903) 1 Ch. D. 728 case, Justice Buckley made following observations: “The statutes related to limited liability have probably done more than any legislation of the last fifty years to further the commercial prosperity of the country.

In partnership, each partner of a firm is personally liable for all the liabilities of the firm to an unlimited extent.

Perpetual Succession:

The Companies Act states, ‘Members may come and members may go, but the company can go on forever.’ As per Section 34(2) of the Company Act, an incorporated company has the characteristic of perpetual succession. The insolvency of a member, even of all the members of a company does not bring the life of the company to an end

In Re Noel Tedman Holdings Pvt Ltd., (1967) Qd R 56 case, the Court held that company members may come and go but this does not affect the legal personality of the company.

n the case of a partnership firm, the death, insolvency of even one partner of a firm may result in the dissolution of the entire firm.

Easy Transferability of Shares:

Under Section 44 of the company act, the shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. This provision leads to the investment of funds in shares.

In partnership, if a partner wishes to transfer his share in the firm to another person, he cannot do so unless all the other partners agree.

Separate Property:

Company due to separate legal existence, is capable of owning, holding, enjoying, and disposing of property. If a majority shareholder of the uses the company’s resources for personal reasons, he is liable to be held for criminal misappropriation of company funds under the Act.

In Bacha F. Guzdar v Commissioner of Income Tax Bombay, 1955 AIR SC 740 case, the Court held that a company being a legal person, in which all its property is vested and by which it is controlled, managed and disposed of a member cannot, ensure the companies property on its own name.

In partnership, the partnership property belongs to all the partners and the distinction between the property belonging to the firm and the private property of the partners is quite hazy.

Capacity to Sue and Be Sued:

A person can take legal action on his / her name. Similarly, the company as an independent legal entity could take legal action in its own name against another person. In turn, it can be sued by other companies and people. However, the managing directors and other directors are not liable to be sued in the name of the company.

In Aspro Travel Ltd. v. Owners Abroad plc. (1996) 1 WLR 132 case, it is held that jut as a person has a right to his reputation, so also, a company has the right to protect its name from being tarnished and can sue the third party for a defamatory statement made by him against the company.

A partnership is only an aggregation of its partners and can sue, and be sued, only in the name of its partners.

Professional Management:

A company with its vast and almost unlimited resources is capable of attracting the best professional talent at the managerial level in a given industry. This top-level management of the company is given free hand and free functionality. The shareholders have very little control over them, thus the top management can take decisions faster as per the goals and objectives put forward by the company. With available talent, company can expand and diversify very easily.

In a partnership firm due to less availability of funds almost all the managerial functions are done by partners themselves and thus partnership firm lacks professional management.

Democratic Set-up:

The working of a company is governed by the Board of Directors. These directors are elected and appointed by shareholders in their Annual General Meetings. These directors are experts in their field and can govern the company professionally.

Capacity to Raise Finance:

A company is in a much better position to raise finances than any other form of the business entity since a company can issue shares or debentures to the public. It is easier for the company to get loans from banks and financial institutions. This gives the company the capacity to raise larger finances. Additionally, the company can create a floating charge on its assets as security for the money borrowed by it.

A Partnership has to rely on the personal credit of partners in the market and are not able to raise larger finances.

Common Seal:

The documents and deeds made under company seal entirely authentic and authoritative.

Conclusion:

Company is artificial person and has corporate personality different from its members. Due to a corporate personality a company bears its own name, acts under the name, has a seal of its own and its assets which are separate and distinct from those of its members. Company is governed by the laws of the land, in which it is incorporated. Since a corporate body (i.e., a company) is the creation of law, it is not a human being, it is an artificial juridical person (i.e., created by law) and it is clothed with many rights, obligations, powers and duties prescribed by law. The company, though a legal person, is not a citizen under the Citizenship Act, 1955 or the Constitution of India.

2. Discuss the nature of Corporate Personality and state the various theories of Corporate Personality OR Discuss the theory of corporate personality.

Corporate personality is the creation of law. And as per the law, a corporation is an artificial person created by the personification of a group of individuals. The theory of corporate personality mainly states that a company has a legal identity different from its members. A company with such personality has an independent legal existence separate from its shareholders, directors, officers and creators. This is separation is known as the corporate veil.

Due to a corporate personality a company bears its own name, acts under the name, has a seal of its own and its assets which are separate and distinct from those of its members. It is a different ‘person’ from the members who compose it. Therefore, it is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts and suing or being sued in the same manner as an individual. Its members are its owners however they can be its creditors simultaneously. A shareholder cannot be held liable for the acts of the company even if he holds virtually the entire share capital.

Theories of Corporate Personality:

A Company is an artificial or fictitious Person created by the personification of a group or a series of individuals called members. A Company is an artificial person created by law. It is not a human being but it acts through human beings. It is considered as a legal person which can enter into contracts, possess properties in its own name, sue and can be sued by others etc. It is called an artificial person since it is invisible, intangible, existing only in the contemplation of law. It is capable of enjoying rights and being subject to duties.

In Trustees of Darmouth College v woodward (1819) 17 US 518 case, The Court defined company “as a person, artificial, invisible, intangible and existing only in the eyes of the law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it either expressly or as accident to its very existence”

Theories of corporate personality give us a theoretical perspective to understand the concept, but in the real world with practical problems, they are of little use. Different theories of corporate personality are as follows:

Fiction Theory:

The Fiction theory was propounded by Savigny. Salmond and Holland were the supporters of this theory. As per the fiction theory, a corporation exists only as an outcome of fiction and metaphor. Thus, the personality that is attached to these corporations is done purely by legal fiction. There is double fiction in case of company because the Personality of Corporation is different from the personality of its members. The main defect of this theory is that it exists in the eyes of law only.

Concession Theory:

Salmond, Savigny and Dicey are the main supporters of this theory. This is similar to the fiction theory. According to this theory, the only realities are sovereign and individual. However, it states that the legal entity has been given a corporate personality or a legal existence by the functions of the State. So as per this theory, only the State can endow legal personalities, not the law. Thus company are treated as persons merely by a concession and the part of the sovereign. Thus, a corporate personality is nothing but a concession given to group or body of individuals by law to act as one body.

Realist Theory:

Realist Theory was propounded by Jurist Gierke. It was supported by Pollock, Geldart, Maitland etc. According to Gierke, Corporation is a real but mysterious entity, every group has a real mind, a real will and real power of action. As per the realist theory, there is really no distinction between a natural person and an artificial person. Thus, a corporate entity is as much a person as a natural person. So, the corporation does not owe its existence to the state or the law. It just exists in reality.

Bracket Theory:

Bracket theory or symbolise theory was propounded by Ihering. This is one of the more famous and feasible theories of corporate personality. According to this theory, a corporation is created only by its members and its agents. The members of a corporation are the bearers of the rights and duties which are given to the corporation for the sake of convenience. Thus, the people who represent the corporation make up the corporation. The law only puts a bracket around them for convenience purposes.

The disadvantage of this theory lies in the fact that it is not able to indicate when the bracket may be removed and the mask lifted for the purpose of taking note of the members constituting the corporation.

Separate Legal Existence of a Company Different from its Members:

A registered company is an entity distinct from its members. A creditor of an incorporated company has remedy only against the company for his debts and not any of the members of whom it is composed. The principle of separate legal entity was explained and emphasized in the famous case of Salomon v Salomon & Co. Ltd 1897 AC 22.

Salomon v. Salomon Co. Ltd. Case

Salomon’s case established beyond doubt that in law a registered company is an entity distinct from its members, even if the person holds all the shares in the company i.e., a company has separate legal existence. There is no difference in principle between a company consisting of only two shareholders and a company consisting of two hundred members. In each case, the company is a separate legal entity.

Other case laws are Lee V. Lee’s Air Farming Ltd. and Re. Kondoi Tea Co Ltd. Case:

Company is governed by the laws of the land, in which it is incorporated. In TDM Infrastructure Private Limited v UE Development India Private Limited, Arbitration Application No. 2 of 2008, the Supreme Court of India held that a company’s nationality is determined primarily by its place of incorporation, and is not affected by the company’s “central management and control” being located outside India. Though it is established through judicial decisions that a company cannot be a citizen, yet it has nationality, domicile and residence. It is to be noted that certain fundamental rights enshrined in the Constitution for protection of “person”, e.g., right to equality (Article 14) etc. are also available to company.

Conclusion:

3. “A company is a legal entity, distinct from its members” In what cases do the courts ignore this principle? OR, State the circumstances in which the law would disregard the corporate personality of a company OR, Explain the circumstances under which the court can lift the corporate veil of a company.

Lifting of Corporate Veil:

There are certain instances in which justice cannot be made until the corporate veil is lifted. The main instances where the doctrine of lifting the corporate veil is applied are as follows:

Determination of real character of a company/ trading with the enemy
For the benefit of revenue
Under statutory provisions
Misstatements in prospectus
Failure to return application money
Reduction of membership below statutory minimum
Misdescription of name of the company
Fraud or improper conduct
Holding and subsidiary companies
Liability for ultra-vires acts:
• Public interest/public policy:
Agency or trust
Criminal act

Determination of Real Character of a Company/ Trading With the Enemy:

A company is an artificial person. It has no nationality. As it is not natural it cannot be loyal or disloyal similarly, it cannot be a friend or an enemy. Even in times of war, it should not be classified as “Enemy”. But it becomes necessary to find the nationality and interest of the people having control over the company. Thus at the time of war, it may become necessary to lift the corporate veil of a company to determine whether the company has an enemy character.

Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916)2 AC

For the Benefit of Revenue:

The Court has the power to disregard corporate entity if it is used for tax evasion or to circumvent tax obligations.

Re. Dinshaw Maneckjee Petit, AIR 1927 Bom 371

Under Statutory Provisions:

Under the Companies Act, the individual person committing a wrong or an illegal act to be held liable in respect of offenses as ‘officer who is in default’. The provision gives a list of officers who shall be liable to punishment or penalty under the expression ‘officer who is in default’ which includes a managing director or a whole-time director.

Misstatements in Prospectus:

Under Section 26 (9), Section 34 and Section 35 of the Act, it is made punishable to furnish untrue or false statements in the prospectus of the company.

Failure to Return Application Money:

Under Section 39 (3) of the Act, against allotment of securities, if the stated minimum amount has not been subscribed and the sum payable on the application is not received within a period of thirty days from the date of issue of the prospectus, then such officers are liable for punishment.

Reduction of Membership Below Statutory Minimum:

The Act lays down that if the members of a company is reduced below seven in the case of a public company and below two in the case of a private company and the company continues to carry on the business for more than six months, while the number is so reduced, every person who knows this fact and is a member of the company is severally liable for the debts of the company contracted during that time. It is only that member who remains after six months who can be sued.

Madan Lal v. Himatlal & Co. (1997) 1 Comp LJ 399

Misdescription of Name of the Company:

Under the Act, an officer of a company who signs any bill of exchange, hundi, promissory note, cheque wherein the name of the company is not mentioned in the prescribed manner, such officer can be held personally liable to the holder of the bill of exchange, hundi etc. unless it is duly paid by the company.

In Hendon v. Adelman, 1973 New LJ 637 case, the directors of the company were made liable for stating the company’s name as “L R Agencies Ltd.” on a cheque when the actual name of the company was “L & R Agencies Ltd.”

Inducing Persons to Invest Money in the Company:

Under Section 36 of the Act, any person who makes false, deceptive, misleading or untrue statements or promises to any other person or conceals relevant data from other people with a view to induce him to enter into either of following:-

An agreement of acquiring, disposing, subscribing or underwriting securities.
An agreement to secure profits to any of the parties from the yield of securities or by reference to fluctuations in the value of securities.
An agreement to obtain credit facilities from any bank or financial institution.

In such circumstances, the corporate personality can be ignored with a view to identify the real culprit and make him personally liable under Section 447 of the Act accordingly.

Furnishing False Statements:

Under Section 448 of the Act, if in any return, report, certificate, financial statement, prospectus, statement or other document required, any person makes false or untrue statements, or conceals any relevant or material fact, then he is liable under Section 447 of the Act.

Repeated Defaults:-

Under Section 449 of the Act, if a company or an officer of a company commits an offence punishable either with fine or with imprisonment and this offence is being committed again within a period of 3 years, such company and officer are liable for punishment.

Fraud or Improper Conduct:

Section 339 imposes liability for fraudulent conduct of the company’s business.

re. William C. Leitch Bros Ltd., (1932) 2 CH 71 (ChD).

Holding and Subsidiary Companies:

Under Section 129 of the Companies Act, 2013 a company is required to prepare a consolidated financial statement of the company and all its subsidiaries, and such a statement is to be placed before its members at the annual general meeting of the company.

Bajrang Prasad Jalan v. Mahabir Prasad Jalan [2000] 6 Comp LJ 377

Liability for ultra-vires acts:

Every company is bound to perform in compliance with its Memorandum of Association, Articles of Association, and the Companies Act, 2013. Any action done outside purview of either is said to be “ultra-vires”. Such operations of the company can be subjected to a penalty.

Ashbury Railway Carriage & Iron Company Ltd v. Hector Riche, (1875) 44 L.J.Exch 185.

Public Interest/Public Policy:

Where the conduct of the company is in conflict with public interest or public policies, Courts are empowered to lift the veil and personally hold such persons liable who are guilty of the act. To protect public policy is a just ground for lifting the corporate personality.

Agency or Trust:

Where a company is acting as an agent for its shareholders, the shareholders will be liable for the acts of the company. It is a question of fact in each case whether the company is acting as an agent for its shareholders.

Criminal Act:

When a crime is committed by a company, it is not only the company that is made liable to pay the prescribed fine, but all the officers in default are also similarly punishable.

Conclusion:

It should be noted that the principle of Salomon v. A. Salomon & Co. Ltd. is still the rule and the instances of piercing the veil are the exceptions to this rule. The legislature and the courts have in many cases now allowed the corporate veil to be lifted. The act of piercing the corporate veil until now remains one of the most controversial subjects in corporate law. There are categories such as fraud, agency, sham or facade, unfairness, and group enterprises, which are believed to be the most peculiar basis under which the Law Courts would pierce the corporate veil. But these categories are just guidelines and by no means far from being exhaustive.

4. Explain disadvantages of incorporation OR What are the disadvantages of the formation of a company?

The disadvantages of incorporation are as follows:

Lifting of corporate veil
Formalities
Expenses
More paperwork
Publicity and loss of privacy
Double taxation
Denial of some fundamental rights
Control possible without majority shareholding
Possibility of fraud
Difficulty in closing the business

Lifting of Corporate Veil:

A company is an artificial person is clothed with a corporate veil. It cannot act on its own, it can act only through natural persons i.e. through the Directors. The corporate veil separates the company from its shareholders. This concept of corporate veil is applied in Solomon v. Solomon case, Lee v. Lee’s Air Farming Ltd. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the Court to identify a company with its members. There are certain circumstances when the lifting of the corporate veil becomes necessary. The separate personality of the company and its statutory privileges should be used for legitimate purposes only. Where the legal entity of the company is being used for fraudulent and dishonest purposes, the individuals concerned will not be allowed to take the shelter behind the corporate personality. The court in such cases shall break through the corporate shell and apply the principle of what is known as “piercing or lifting of the corporate veil”. Thus lifting of corporate veil refers to the possibility of looking behind the company’s framework (or behind the company’s separate personality) to make the members liable, as an exception to the rule that they are normally shielded by the corporate shell.

Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916)2 AC

Formalities:

Incorporation requires a host of formalities to be complied with than any other form of the business. Formalities start before the actual incorporation of a company and exist throughout the life of the company and continue even during its winding up. Meetings are to be held on time, accounts are to be maintained as specified and its auditing should be done as per the provisions in the Act in time. Charges and mortgages are to be filed within the prescribed time. Returns are to be filed within time. Appointments of directors, their removal and replacements should be as per the Act. Noncompliance with the Act results in punishment to defaulters.

Expenses:

The initial cost of incorporation includes the fee required to file the Articles of Incorporation, potential attorney or accountant fees, or the cost of using an incorporation service to assist to incorporate the company with completion and filing of the paperwork. There are also ongoing fees for maintaining a corporation. Thus expenses are incurred before the actual incorporation of a company and throughout the life of the company and continue to incur even during its winding up.

More Paperwork:

A lot more paperwork involved in maintaining a corporation than a sole proprietorship or partnership firm. Corporations must maintain a minute book containing the corporate bylaws and minutes from all corporate meetings. Other corporate documents that must be kept up to date at all times include the register of directors, the share register, and the transfer register. Most corporations are required to file annual reports on the financial status of the company. The ongoing paperwork also includes tax returns, accounting records, meeting minutes and any required licenses and permits for conducting business.

Publicity and Loss of Privacy:

If a corporation is an incorporated company, one person doesn’t retain complete control of the entity. The company is governed by a board of directors, who are elected by shareholders. As per the Act, several documents and accounts are to be submitted to the authorities. The files with Registrar of Companies are available for public inspection. Thus the privacy is lost.

Double Taxation:

People who are owners of a corporation, and who also work as an employee of the business, can receive financial compensation in two different ways. In addition to receiving a salary or wages for work performed, the owner may also receive a dividend or distribution on the stock that he or she owns. Any distribution of income to stockholders via dividends is taxable. In the case of corporations such as a C Corporation, have the potential to result in “double taxation.” Double taxation occurs when a company is taxed once on profits, and again on the dividends paid to shareholders.

Denial of Some Fundamental Rights:

The Constitution guarantees fundamental articles under Article 14 to all and under Article 19 to the citizens of India. A company has a nationality, domicile, and residence but cannot ask for the enforcement of those fundamental rights which are exclusively available to national citizens. The nationality of the company, however, does not depend upon the nationality of its shareholders. A company has a nationality, domicile, and residence but cannot ask for the enforcement of those fundamental rights which are exclusively available to national citizens. The nationality of the company, however, does not depend upon the nationality of its shareholders.

In the State Trading Corporation of India v. Commercial Tax Officer, 1963 SCJ 705 case, the company argued that as all the shareholders of the company are citizens of India, the company should be treated as a citizen of Indi and it should get all the benefits conferred upon the citizens of India. The Court rejected the argument and it was held that neither the provisions of the Constitution nor the Citizenship Act applies to the company. It should be noted that though a company does not possess fundamental rights, yet it is a person in the eyes of law. It can enter into contracts with its Directors, its members, and outsiders.

In Rustom Cavasjee Cooper v. Union Of India 1970 AIR SC 564 popularly known as the Bank Nationalization case, the Court observed that in all cases where the company alleges that its fundamental rights have been violated, it is a fact that the fundamental rights of its shareholders are violated. So, if a shareholder files a writ petition, either by himself or even jointly with the company, his petition cannot be dismissed if he is a citizen of India. In such a case, he does not lose his fundamental right only because he is also a shareholder in a company.

Control Possible Without Majority Shareholding:

It is not always the case that the majority of shareholders have the control of the company. If a business family promotes accompany and holds only 10% of its shares, if the rest of the shares are held in small numbers by thousands of shareholders spread over the large geographical areas (country), still the family can have effective control over the company. In such cases, this 10 % of shareholders have 100% control over every aspect of the company. There is a possibility that the resources and finances of the company can be used for personal gains and benefits.

Possibility of Fraud:

When shareholding of a public limited company is spread out among thousands of small shareholders. In such cases, the board of directors has full control over every aspect and resource of the company including finance. In such cases, there is a possibility that the resources and finances of the company can be used for personal gains and benefits. Though there is governmental control over affairs of the company, large frauds have been done in the corporate world.

Difficulty in Closing the Business:

Perpetual existence of a company is considered one of the important advantage of the incorporation. But the same advantage becomes hurdle during the dissolution of the business. It requires significant time and money to complete the necessary procedures for dissolution.

Conclusion:

There are many advantages and disadvantages of incorporation of a company, but advantages of incorporation score more over the disadvantages. Company is artificial person and has corporate personality different from its members. Due to a corporate personality a company bears its own name, acts under the name, has a seal of its own and its assets which are separate and distinct from those of its members. Company is governed by the laws of the land, in which it is incorporated. Since a corporate body (i.e., a company) is the creation of law, it is not a human being, it is an artificial juridical person (i.e., created by law) and it is clothed with many rights, obligations, powers and duties prescribed by law. A company is in a much better position to raise finances than any other form of the business entity since a company can issue shares or debentures to the public.

5. What are advantages and Disadvantages of incorporation. Explain with case laws.

Advantages of forming company (Incorporation)

Advantages of incorporation are as follows:

Separate Legal Existence: A company is a legal person in the eyes of law. A company is independent and separate from its members, and the members cannot be held liable for the acts of the company, even when a particular member owns the majority of shares. This was held in the case of Solomon v. Solomon & Co.
Limited Liability: Due to the creation of a separate legal entity, the members have limited liability. Under Section 34(2) of the Company Act, in the event of a company being shut down, the members of the company are solely liable to contribute to the assets and liabilities of the company. In J. H. Rayner (Mincing Lane) Ltd. v. Dept. of Tarde and Industry, (1990) 2 AC 418 case, no member is bound to contribute anything more than the nominal values of the share held by him.
Perpetual Succession: Perpetual succession, means that the membership of a company may keep changing from time to time, but that shall not affect its continuity. An incorporated company never dies, except when it is wound up as per law. In Re Noel Tedman Holdings Pvt Ltd., (1967) Qd R 56 case, the Court held that company members may come and go but this does not affect the legal personality of the company.
Easy Transferability of Shares: Under Section 44 of the company act, the shares or other interest of any member in a company shall be movable property, transferable in the manner provided by the articles of the company. This provision leads to the investment of funds in shares.
Capacity to Sue and Be Sued: A person can take legal action on his / her name. Similarly, the company as an independent legal entity could take legal action in its own name against another person. In turn, it can be sued by other companies and people.
Company has nationality: Company is governed by the laws of the land, in which it is incorporated. But company is not citizen.
Separate Property: An incorporated company has separate legal existence and an artificial person in the eyes of law. Hence it is capable of owning, holding, enjoying, and disposing of property. In Bacha F. Guzdar v Commissioner of Income Tax Bombay, 1955 AIR SC 740 case, the Court held that a company being a legal person, in which all its property is vested and by which it is controlled, managed and disposed of a member cannot, ensure the companies property on its own name.
Professional Management: A company with its vast and almost unlimited resources is capable of attracting the best professional talent at the managerial level in a given industry.
Democratic Set-up: The working of a company is governed by the Board of Directors. These directors are elected and appointed by shareholders in their Annual General Meetings.
Capacity to Raise Finance: A company is in a much better position to raise finances than any other form of the business entity since a company can issue shares or debentures to the public.
Common Seal: The documents and deeds made under company seal entirely authentic and authoritative.

Disadvantages of Forming Company:

Disadvantages of incorporation are as follows:

Lifting of Corporate Veil: The corporate veil separates the company from its shareholders. But the theory cannot be pushed to unnatural limits. Circumstances must occur which compel the Court to identify a company with its members. There are certain circumstances when the lifting of the corporate veil becomes necessary. Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916)2 AC
Formalities: Incorporation requires a host of formalities to be complied with than any other form of the business. Formalities start before the actual incorporation of a company and exist throughout the life of the company and continue even during its winding up.
Expenses: Expenses are incurred before the actual incorporation of a company and throughout the life of the company and continue to incur even during its winding up.
More Paper Work: Corporations must maintain a minute book containing the corporate bylaws and minutes from all corporate meetings. Other corporate documents that must be kept up to date at all times include the register of directors, the share register, and the transfer register. Most corporations are required to file annual reports on the financial status of the company.
Loss of Privacy: As per the Act, several documents and accounts are to be submitted to the authorities. The files with Registrar of Companies are available for public inspection. Thus the privacy is lost.
Double Taxation: Double taxation occurs when a company is taxed once on profits, and again on the dividends paid to shareholders.
Denial of Some Fundamental Rights: A company has a nationality, domicile, and residence but cannot ask for the enforcement of those fundamental rights which are exclusively available to national citizens.
Control Possible Without Majority Shareholding: Managing directors may have less share in the company andthe rest of the shares are held in small numbers by thousands of shareholders spread over the large geographical areas (country). Thus members having small shareholding can control over every aspect of the company. There is a possibility that the resources and finances of the company can be used for personal gains and benefits.
Difficulty in Closing the Business: Perpetual existence of a company is considered one of the important advantages of the incorporation. But the same advantage becomes hurdle during the dissolution of the business. It requires significant time and money to complete the necessary procedures for dissolution.

Conclusion:

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