Forming a Company

What is a Company?

• A legal entity whereby the shareholders are not liable for the company's debts.  The liability of the company is limited to the company's assets.
• The directors can be personally liable in some circumstances.  This may relate to reckless trading or trading in the knowledge that the company will not be able to meet its future debts when due.
• The shareholders own the company and where appropriate provide the funds for the company.
• The shareholders appoint (and remove) the directors.
• The directors operate the company and conduct its activities on a day-to-day basis.
• The directors can also be shareholders.
• It is possible to have a company with only one shareholder who is also the sole director.
• Rules governing relationships between directors and shareholders and the company are set out in the Companies Act and the company's constitution (if it has one).

Why have a Company?

• Limited liability - the shareholders are not liable for the company's debts.  However suppliers, finance organisations and landlords will often require personal guarantees of the directors.
• Business efficacy and administration - being a separate legal entity eases dealings with other businesses and customers and provides a convenient entity for borrowing monies for the business.  The company and assets the shareholders contribute to the company.  It enables separation of the operators of the business (directors) and the owner/funders (shareholders).
• Changes in owners/operators - additional shareholder/directors or a change in shareholders/directors are accomplished quite easily without any change to the company's operations, letterhead, and dealings with customers.