Business Solicitors

Advantages of Incorporation

Registering a company allows you to trade with limited liability, and this has both advantages and disadvantages. Once a company has been formed it means the directors have limited liability and this is probably the biggest advantage. This means that should a company go into insolvency then the personal assets of the directors are normally safe. The only cases where the director’s assets are not safe are in cases of fraud or when company law has not been followed.

The disadvantages of registering a company are that certain responsibilities are placed on the directors of a limited company that are not applicable to sole traders or a partnership. Accounting rules for limited companies are very strict and must be followed precisely. Qualified accountants must carry out annual audits of the company. Once the company has finished auditing, the results become public property so that anyone can view them.

Off the shelf or bespoke?

There are two main ways to set up a limited company:

1. The cheapest way of registering a company is to purchase one from a specialist agent. These companies are already set up and registered, they have just never traded. This is known as buying ‘off the shelf’. To do this, the company name must be changed, and the directors, shareholders and secretary must be changed. Forms can be filed for notification of all these changes and normally only take a couple of days to complete. This method is a very common one and has no real disadvantages. It is possible however that a bank or finance company may query the change of directors and/or shareholders.
2. A company can be created from the very beginning, and this involves the directors providing a lot of information. They need to provide their names, the shareholder’s names, the company name and its nature, the initial share capital and number of shares available to issue, and finally the name of the company secretary. In this case a brand new company would be created and all the documentation needed would be specific to this new company. This process is very fast and can take as little as a few hours before the details given appear on the Companies Register.

Offshore?

A company can be formed offshore, and this is usually done in a place with low tax or other benefits such as the British Virgin Islands, Delaware or Gibraltar. There are many advantages to having a company set up offshore, but there are also dangers for the unwary. The main advantages are:

• The bank accounts, stocks, shares and other funds that belong to the company may not be subject to tax.
• Any profits gained from chartering ships or yachts may not be subject to tax.
• Property sold in the host country may be immune to capital gains tax.
• The daily business operations of the company can be set up to avoid taxes.
• Placing family assets in a trust company can reduce or even completely remove tax.
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