Why go for limited company formation rather than sole trader or partnership company formation?
The key benefits of limited company formation are to the people who are in charge of the company activities. If something were to go wrong these people are not held liable. However, if it is a case of fraud, whereby the company decides to do business outside the scope of registered business or any business transaction which is considered illegal by the law, the directors and shareholders of the company will be held personally liable through court order.
If the directors were to be sacked, pass away, resign or retire for any reason, the company will still continue to exist and allowed to do business. On the other hand if anything goes wrong in a sole trader or partnership type company, all parties involved in the company will be held personally liable without exemption.
Another major benefit is their accessibility to acquire government projects through tenders, as most government projects and even some large scale project are only opened to limited companies for tender as they are seeking financial stability and credibility. In addition, limited company has higher marketing company profile to make it easier to sell the company in the future.
As limited company It will be easier to involve potential investors to help raise capital funding for the company by issuing shares or selling shares to them rather than coming up with a complicated partnership agreement. This is so, because you have more credibility and transparency towards the investors, supplier and customer. Concomitantly, there is also the increase willingness of large organizations to deal with limited companies as oppose to the rest.
Moreover, there is clear hierarchy and legal documentation governing company formation that clearly states to decide who will have the authority in managing the company. Thus, helps to minimize conflicts or disputes within the company. Any major dispute or issues are handled appropriately and professionally through the right channel, AGM (Annual General Meeting). While any disputes within the sole trader or partnership business were to happen, there are no proper channels to resolve disputes. This may end up ugly for the parties involved as emotions are allowed to fly uncontrollably.
Limited company has flexibility of managing income to minimize tax. There may also take advantage of tax incentive depending on their industry. You have the opportunity to safeguard yourself when dealing with large inventory purchases or trade. You should note that after the completion of any limited company formation, there is no time frame requirement for the company as to when to commence business or trade. Concurrently, this allows you to secure your company business name for your future business endeavors.
During limited company formation, there will be legal documents (e.g. MA(Memorandum of Association) and AA(Articles of Association)) you are required to fill and provide information such as company name, business nature, location of operation, director’s authority, and shareholder rights. There is more paperwork and cost in a limited company formation but the advantages of running a business is worth the time and money.
After completing the limited company formation, the company will be subjected to companies act and business laws and practices which will be governed by governmental body, Company House and in some places also known as Registrar of Companies (e.g. Scotland). The binding business laws, practices and companies acts towards the limited company will respectively following the country that the company is registered.