If you form a company, there are of course advantages and disadvantages. An advantage if you have a large business is that by using a company formula it is a beneficial method of raising money through public placing of shares. If you only have a small business, the main advantage of forming a company is the separate identity and limited liability.
Disadvantages include the requirement from shareholders and directors to provide personal guarantees if borrowing or credit is placed within the company.
How To Form A Company
The basic information required when forming a company is ‘Articles of Association’. This document established how the company is managed and the manner of business it can engage in. However, it must be strongly noted that every company is regulated by the Companies Act 2006.
Rather than forming a company, it is possible to buy a company ‘off the shelf’. If you take this approach, the company will usually be a basic shell with no assets but will include the bare essentials to be used for the purpose of a business. These types of company can be purchased from specialist formation businesses and the purchasers then decides shareholders and directors.
Separate Legal Entity
By forming a company it is a legal entity within its own right. The company can own property, hold a bank account, trade including entering contracts and employ staff. Furthermore, as a legal entity a company can borrow money and hold its own debts.
When a company is formed, the shareholders provide finance in exchange for ‘shares’ in the company but the shareholders are usually separate from the company. If the company owes debt or is wound up, normally shareholders cannot be held liable for the company’s debt.
When a company is formed, it is managed and controlled by directors. These are agents of the company authorised to conduct business on its behalf.
What If It Goes Wrong?
If a company is created and cash flow evaporates meaning debts cannot be maintained, the company can be wound up by the Court.