Why a Limited Company?

Conducting a business through the medium of a registered company has certain advantages over a partnership or remaining as a sole trader:
Separate legal identity – a company is a corporate body and a separate legal person from its members, whereas a partnership is a group of individuals acting together and a sole trader is the same legal person as the business. A company exists until it is wound up, being unaffected by the death, bankruptcy or resignation of its members or its management.

Ownership – a company belongs to its members and is managed by directors, whose personal assets, in the absence of guarantees given to third parties, are protected should the business fail.

Business assets – business assets belong to the company and are unaffected by changes in its membership or its management, whereas in a partnership, property and assets are vested in the partners personally, necessitating a transfer of assets should changes in personnel take place.

Debts and liabilities – being a separate legal entity, the debts and liabilities of the company belong to the company and not to the members or the directors. A members liability is restricted to the amount paid up on their shares, or in certain circumstances, the amount unpaid, where the shares are partly paid shares. In a partnership, each partner is jointly responsible for any debts and obligations incurred in the business. There is no legal difference between a sole trader and his business. His businesses debts are therefore his personal debts.

Taxation – A company is liable for tax on its profits after normal and allowable deductible expenses have been paid. Corporation tax is payable by the company and not its members or management. They pay tax on their personal income. Tax advice should always be sought from a suitably qualified professional.

Borrowing – a company has access to a wider variety of borrowing facilities in order to fund the business. Floating charges may be created over company assets but not over partnership assets.

Although conducting a business through a registered company has many advantages, there are some disadvantages:

Formalities – a company has to observe certain formalities with the Registrar of Companies. These are not optional. Penalty fines and ultimately legal action can follow if the formalities are not observed. The main obligations relate to filing of accounts and annual returns but the Registrar must be informed, in the prescribed form, of many actions and decisions of the company.

Privacy – all documents, including the company's accounts, enter the public domain and are open to inspection.