Legal Formalities. Incorporation of a company under the Companies Act

1. Legal Formalities. Incorporation of a company under the Companies Act requires observance of various legal formalities which are not only
cumbersome and complex, but also time consuming and expensive. These legal formalities make incorporation a difficult task.
2. Excessive Legal Regulation. Even after incorporation, a company has to comply with innumerable regulations and instructions provided under the
Companies Act and other related Acts, while carrying on its activities. It has to obtain approyal and sanction of various authorities for certain Acts.
Moreover, it has to strictly follow the provisions of the Act in all matters relating to issue of capital, appointments, meetings, managerial remuneration,
investments and borrowing, declaration and payments of dividends, maintenance of books, filing of documents, etc.
\.30 Excessive Government Regulations. Because oftheir great impact on the social and economic welfare ofthe country, incorporated companies are
subject to severe government regultions and control under the different laws like the Companies Act, M.R.T.P. Act, FEMA, etc. But such rigid control and
regulations tend to cripple the initiative and enterprise of the management for efficient performance of the companies activities.
4. Loss of Privacy. Another demerit of a incorporation is the loss of privacy. A public company will have to publish its constitution, directorate, capital
structure, charges on its assets, proceedinof geI1eral meeting and final accounts, etc., by filing prescribed documents with the Registrar of Companies.
5. Divorce between Ownership and Control. After incorporation a large number of persons join their hads as members in a company but all of them
cannot take active part in the management of the. company. The effective powers of management are exercised by the directors who are the, elected
representatives of the shareholders. There is a virtual divorce between ownership and management. As a result wastage and inefficiency creeps in the
management of a company.
6. Greater Tax Burden. In certain cases, the tax burden on an incorporated company is greater than unincorporated companies, firms, etc.
7. Complicated Winding-up Process. An unincorporated body can be dissolved or wound up speedily, since it does not involve any complicated legal
process. But in the case of incorporated companies, detailed and complicated statutory provisions have to be complied with for winding up, which are both

time consuming and expensive.