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Advantages and forms of Limited Company
Fadhrick Pickaso
A limited company is an entity (generally known as corporation), which is set up to carry out any kind of business, whose liability is limited by law. These companies are set up by Memorandum of Association & Articles of Association. There could be three types of limited companies set up:
Private company limited by share (Ltd.)
This is most common form of a limited company. In Australia, its equivalent is Pty. Ltd.
Private company limited by guarantee
These types of companies do not have any share capital. But, it is guaranteed by the members of the company, who agree to pay a fixed amount in case the company gets liquidated. Generally, charities are incorporated as a company in this form. Another example could be Financial Services Authority.
Public limited company (p.l.c.)
Shares of public limited companies are publicly traded on stock exchanges. They are similar to Corporations in USA and Aktiengesellschaft (AG) in Germany.
In case, a company becomes bankrupt or insolvent, share holders of a limited company are required to pay balance amount which remains unpaid of his/her share payment. Generally, it is 0 as these shares are usually fully paid up.
Following are the advantages of a Limited Company:
Separate Legal Identity
A limited company is a separate legal entity distinct from its management and share holders.
Limited liability
Limited liability means Members (Share holders) are only liable to pay any amount unpaid against their share, in case the company goes into liquidation. As shares are generally issued as fully paid up, share holders are not liable to pay anything in case the company becomes insolvent. In such a case, share holders only loose the money they have paid for getting those shares. Personal assets of the share holders are not at risk. But, this condition does not apply in case of any fraud. Legally, company directors should see that the company is not incurring any liability, which the company might not be able to pay later. In case, any creditor loses his money because of fraud made by a director, the director's personal liability is unlimited.
Protection of Company Name
The choice of company name is limited and a name to the company is provided following certain rules. This ensures that nobody else may get the same name. In case of sole traders and partnership firms, only way of protection for them is through getting a trade mark.
Continuity
Once a company is formed, it remains forever. Directors, management and employees only act as agent of the company. It does not matter whether they leave, retire or die. The company continues to exist.
New Shareholders and Investors can be easily introduced
Issue, transfer or sales of shares are very simple procedures.
Taxation
Income tax is paid by sole traders and partners of partnership firms. But, in case of companies they pay corporate tax on their profit
Article submitted Wednesday, June 25, 2008
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