Advantages of a Limited Company

There are a number of reasons why people choose to incorporate a company rather than continue as a sole trader or start a partnership.

Limited Liability

The primary reason for selecting a limited liability company is the protection that it affords to shareholders. This is because once a company is incorporated, it is regarded as a separate legal entity from its shareholders.

This concept of limited liability becomes important if the company is unable to pay its debts. Shareholders of a limited liability company are not liable for the business debts of the company unless:

• They have not fully paid for their shares
• They have given personal guarantees to creditors, such as banks or suppliers
• They have traded recklessly or fraudulently

By contrast, a sole trader or a person trading in partnership will always be exposed and personally liable for business debts that cannot be met.
Although it is common to speak of a 'limited liability company' it is in fact the liability of the shareholders that is limited.

Continuity of existence

A company will continue to exist until it is removed from the register and continues with changes in ownership or management. With a sole trader business ceases to exist if the trader dies or stops trading. Similarly, in the case of a partnership, the retirement or death of a partner can bring the partnership to an end.

Transferability of shares

Shareholders may sell or otherwise dispose of their shares at any time (subject to any restriction imposed in the company's constitution). This makes a company much easier to sell or pass on to others. A partnership interest is generally not able to be assigned or transferred.

Marketplace credibility

As an internationally recognised business structure, the limited liability company structure enjoys greater credibility and a more professional image in the marketplace than the sole trader.

Shareholder Control

In many companies the shareholders are also the directors of the company, and the largest shareholder is often the sole or managing director. In larger companies most shareholders have no say in its daily operations.

Shareholders that in a company may participate in the election and removal of directors and this gives shareholders the collective right to elect the directors and have the ultimate control of the company without being concerned in its daily affairs.

Protection of the Company Name

Incorporation legally protects your company name against anyone else incorporating a similarly named limited company.