Limited Liability Entities
The primary advantage of these entities is that they are all based on the simple principle that the liability of the shareholders/subscribers and officers is strictly limited to their direct investment in the company. Generally, the only exceptions are when some kind of fraudulent or grossly reckless act or omission has occurred involving the aforementioned. It is important to note that the 'innocent' shareholder without any involvement in the malfeasance will not lose the benefit of limited liability.
Basic Types of Limited Liability Company
1. A Private Limited Company by Shares
Most common type of company in the England & Wales; straightforward limited company formation process. The principal purpose is to earn profits for the shareholders who may or may not be the same as the Director(s) or Secretary. These companies can be formed and registered with as little as one Pound (UKŁ1.00). In most cases, they adhere to a standardized format and are remarkably inexpensive.
2. A Public Limited Company By Shares
Theoretically this is a company, which has the same profit motive as a private undertaking save that its shares can be offered for sale to the general public. In reality, the vast majority of PLC's simply operate as "private" companies employing the PLC name simply as a prestige marketing "tool". Nevertheless, even a PLC, which has not sought a public stock exchange listing, must adhere to the requirements of English & Welsh legislation.
The most important differences are that there must be a minimum paid up capital of at least UKŁ50,000.00 with, at least, one quarter of that sum being immediately and fully paid up. Penalties for non-adherence to the provisions of the Companies Act 1985 are also higher. The cost of a non-listed and standard format PLC will vary from UKŁ350.00 to UKŁ700.00. However, the cost of forming a publicly listed PLC can run into hundreds of thousands of Pound's since the legal documentation (the Memorandum & Articles of Association) will always need to be specially drafted and the admission rules set out in the "Yellow' Book (which outlines the requirements for public listing) will have to be adhered with. The latter requiring the services of underwriters, accountants and lawyers - If you think that you may require this type of company please contact our offices by e-mail or by telephone.
3. A Company Limited by Guarantee
This is a company, which has not been established to earn profits for its members but rather to carry out a particular purpose. Charitable, housing and organizational associations most commonly use this type of vehicle. The price of such a company will vary greatly depending on its intended use. - If you think that you may require this type of company please contact our offices by e-mail or by telephone.
GENERAL ADVANTAGES OF A LIMITED LIABILITY COMPANY
- Liability is, in the vast majority of cases, strictly limited to the investments made by the shareholders.
- Company Officers are not personally liable for their actions unless, in most instances, there is a clear and serious breach of their fiduciary duty.
- Ironically, despite the limited liability, such entities often benefit from 'greater prestige' than their sole proprietorship or partnership counterparts. The reason is probably because such an enterprise normally requires more planning and thus is deemed more credible.
- They often benefit from significant tax advantages. In fact, many countries around the world give exclusive tax incentives to this type of entity.
- The rights of shareholders are normally clearly defined and protected. Promotes good record keeping.
- Corporate taxes only become payable after the end of the financial year. This means that money that would otherwise be taxed on a monthly or quarterly basis is available to earn further money before the final payment of tax.
GENERAL DISADVANTAGES OF A LIMITED LIABILITY COMPANY
- In larger companies shareholders often lose direct control over their investment.
- Limited liability companies generally require the appointment of accountants, auditors and professional company secretaries. This means that such a structure is often more expensive to maintain than simple sole proprietorships or partnerships.
- Certain professional bodies, especially those representing the legal and medical fields, do not allow members to register a limited liability company. In many instances, this denial has resulted in very high indemnity insurance.
Which Legal Entity suits your start-up business? Find out more here! -
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