Companies

Incorporation

Incorporating your business as a company has advantages and disadvantages:

 

Pros:

  • An incorporated organisation is recognised as having a legal existence apart from its members. It can own real estate, enter into contracts and agreements, be responsible for its own debts, and sue or be sued. An incorporated organisation has a name unique to itself that cannot be used by any other company.
  • The company is liable for business debts; shareholders are only liable to lose the amount they paid for their shares.
  • Directors' and officers' liability insurance can be purchased by companies.
  • It is easier to spread the ownership of the company by the issue of shares
  • The tax rate on company profits for small companies is lower than the usual rate of company taxation, and is lower than income tax on the profits of an unincorporated business. It is therefore easier to finance a company using retained profits.
  • A company can have more credibility since records and accounts can be inspected at Companies House.
  • A company allows a clearer distinction between investors in, and managers of a business, where this is necessary 
  • An unincorporated organisation ceases when the owner/members die or leave. A corporation continues under its name, independent of who the individual members happen to be, and whether or not they remain members. This facilitates the establishment of long term contracts and commitments that are not tied to any key organisational personnel.

Cons:

  • It takes time and money to comply with relevant legislation. A company is required to report certain information on a regular basis.  Failure to comply with reporting or disclosure requirements could render the company and its directors and officers liable to penalties.
  • Anyone can find out how well you are doing by examining your accounts.
  • Other directors and shareholders have a say in how you run the business.
  • You cannot borrow money from the business.
  • Incorporated organisations are subject to some supervision by government as they must conduct their affairs in accordance with applicable statutes. The corporate structure is governed by the Companies Act.