What is the difference between registered and un-registered companies?

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Is there any problem if the company is not registered?

An incorporated company under the law is a distinct entity and vested with corporate personality, which would be absent in the case of the companies not registered under the law.  If the company is not registered, it could be seen as a legal entity, and thereby it cannot hold the properties in its own name, or incur any debts, borrowing money, having any bank account and mainly it could not sue on its own name or enter into any contracts.  The company could not hold the properties as an agent of the members or trustees, and so the members could not enforce its rights or they cannot be sued for its liabilities.   Therefore, incorporation makes a company a juristic person under the eye of law. The law confers rights and obligations on the juristic person. In Shiromani Gurdwara Prabandhak Committee Vs. Shri Sam Nath Das AIR 2000 SCW 139, it was held that entity acts as a natural person but through an authorized person and the acts of the authorized person be processed within the ambit of law.

In the registered companies, the liability of the members are limited, which is one of the principal advantages of doing business in the corporate form of organization; whereas in unlimited company, the liability for debs of the business is not only to the extent of shares in the firm, but liability may extended even to their personal assets, which could be attached.  Therefore, liability of members is unlimited in the nonregistered firms or company. All the members of the unlimited firm are jointly and severally liable.

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Next point is the existence of the company even after the death of the members, which is called as perpetual succession in the case of registered companies.  A company’s life is determined by its memorandum of association.  As a company, being a separate entity under the eye of law and is independent of the existence of its members.   However, it is not the case of an unregistered firm.  This existence of the firm is affected by the death or incapacity of its partners.

The shares of the registered company are freely transferable unless there is any express restriction, whereas the shares of the unregistered firms transferrable only with the unanimous consent of all the partners, and if the transfer made against the will of any partner, such transferee does not become a partner in the unregistered firm.

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Another essential advantage of registration of company is that the registered company can sue or can be sued. A company, as a separate person, can even sue its own members as the company has right to seek damages.  With respect to unregistered association, the action can be taken in the name of members against the third parties.

The company can enter into contracts in its own name, and a share holder cannot enforce a contract made by the company or he cannot be sued on the contracts made by the company. On the other hand, unregistered firm entered into the contract in the name of the authorized partner /member of the firm.

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Adv. Anitha Gutti

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