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Advantages and Disadvantages of using a company (Advantages…
Advantages and Disadvantages of using a company
Advantages
Shareholders' liability is limited, offering protection to those who are in the business
Perpetual succession means that the business would carry on as usual regardless of the circumstances of its owner and directors
Raising finance may be easier as the company may have an increased borrowing ability. Banks and other lenders are keen to do business with other businesses and may be more willing to lend funds to a company than they would to a sole trader or partnership
Shares are easily transferable, enabling ultimate ownership of the underlying assets to change without going through formalities such as those required if the underlying asset is land
Companies may facilitate arrangements that would otherwise not be possible, eg if the laws of a jurisdiction do not allow local property to be owned by a trust, the trust could instead purchase shares in a company and the company could in turn acquire the property
Tax purposes
Sole trader
Carries all of the risks and responsibilities of the business and is entitled to all of the profits and rewards
Has complete control of the business
Minimum information disclosure requirements
If they were to die, their business would be affected by their death and his assets would be distributed in accordance with their will or the rules of intestacy
No need to have annual accounts audited
Disadvantages
Cost involved
A fee is payable when the company is incorporated
If a service provider is involved, they will charge for the provision of their services in creating the company and on an ongoing basis (appointment of directors, secretary and nominee shareholders and for the provision of general administration)
Requirement to disclose information about the company, although the extent of disclosure of information depends upon the type of company and the jurisdiction its incorporated in
Subject to regulation and must comply with he requirements of the Companies Act 2006 and other applicable requirements, ie those of the London Stock Exchange if the company is listed
Less flexible profit sharing arrangements