Are you an entrepreneur planning to form a corporation? Or a business owner trying to incorporate? If you are, you’ve probably heard of the term incorporation date. And having little knowledge about the corporate world, you may be confused about it.
Are you looking to understand more about incorporation? This article is perfect for you. Here, you will learn about company formation in India, what is incorporation date of a company, and why it is important.
What You Should Know: What is Incorporation Date of Company
The incorporation date is the date when you filed your Articles of Incorporation to the Securities and Exchange Board of India (SEBI). There is some confusion about this date. Sometimes the date when you submitted the articles for filing is different from the actual date stamped therein. This happens because of processing lag. The SEBI processes many companies and the review of the articles takes time to see if the company is fit to be incorporated.
Legally, your incorporation date is the one found in your articles of incorporation. You can usually find it on the SEBI stamp on the first page of the articles. The incorporation date is important because it is when your company officially became a corporation.
Here are key concepts you should understand about the incorporation date.
Grant of Powers
Your company becomes a corporation on the date of incorporation. The return of the stamped and signed copy of the articles of incorporation is your proof of incorporation. On the date of incorporation, your company receives the powers granted by corporation law.
Partnerships and corporations differ in the timing of when they become effective. In partnership, the company effectively starts from the day partners agreed to form a business. However, in corporations, the State will have to declare the company effective first before they can be called a corporation.
A corporation cannot come into existence without the authority of the State. Therefore, companies must get the declaration from the SEBI to be officially recognized as a corporation. And the SEBI grants that authority on the date of incorporation. From this day, the corporation is legally allowed to sell stocks, use its corporate seal, and do other powers granted to it by the State.
Acquisition of Juridical Personality
On the date of incorporation, the company officially acquires its juridical personality. This means that starting on this date, your corporation has the right to act and transact in its name. The incorporation of company in India creates a wall that separates the business and its owners.
To expand, let’s compare corporations and partnerships. A partnership is an entity in itself. But when the partnership liquidates, no power grants protection to its partners. Therefore, if the partnership property is not enough to pay the partnership debts, the creditor can collect from the personal properties of the partners.
In contrast, the State protects owners from threats through corporation law. The law provides for the express separation between a corporation and its owners. Therefore, when someone sues the corporation, it does not translate to them suing the owners. The corporation on its answers to this litigation.
As such, when the owners commit fraud using the name of the corporation before it is incorporated, the owners will have to face the charges of fraud.
The corporation shall pay taxes from the date of incorporation. The incorporation date affects the timing and amount of your tax. Further, your taxes depend on when you start operating. You could incorporate this year, but start operating next year. Accordingly, you would still be required to periodically report to your nearest tax agency.
This is why, if you’re planning to incorporate now but not operate until the next year, it is better to consult with your tax professional on what to do.
Forming a corporation is not easy. It requires a lot of paperwork and government filings. It is also stressful and confusing. Do you need assistance from a business service provider in India? 3E Accounting India is the perfect accounting firm for you. We specialize in business incorporation and serve only to help you reach your goals. Contact us today!