Advantages Of The Corporate Structure

Advantages of the Corporate Structure

A company is a legal entity created separately from those who own and operate it. As a separate entity, the company's debts and taxes are separate from its owners (shareholders), thereby, offering the greatest personal liability protection of all business structures.

A company is an artificial "legal" person. It is owned by shareholders who have limited liability (i.e., they are not personally responsible for the company’s debts). A company is run by directors.

Because the company continues to exist even after the death of a shareholder, it offers tremendous estate planning advantages. In addition to liability protection, incorporating offers attractive tax advantages, better financing and the ability to raise cash.

The main advantage of a Limited Company is to separate business risk from the shareholder's personal assets and a possibility to limit the amount of money that a business proprietor owes personally.

A Company allows shareholders to limit their maximum possible liability for the debts of that Company to the amount of the paid capital in the Company. If a shareholder holds hundred $1.00 shares in a Company, that shareholder's liability for the company's debts is limited to $100.00. Shareholders are only liable for any unpaid shares and any debts that have been personally guaranteed. That's in contrast to the position of a sole trader or partner in a firm who is liable for the debts of that business unlimited.

Whilst there are still common law grounds for the protection of an unregistered name, forming a Company is a way to formally register a Business name and therefore notifying the world of a name's existence.

Once the Registrar of Companies approves the Company name no other Company can be registered with the identical or near identical name.

There is no register for unincorporated bodies such as partnerships or sole traders.

Additional name protection can be archived through registering a Trademark or Service Mark with the Commissioner of Trademarks.

A Company is a separate legal entity from its shareholders.

An individual cannot enter into a contract with him but a shareholder can enter into a contract with the Company. Therefore a shareholder may be employed by the Company or may loan money to the Company on the same basis as any other unrelated party.

A Company gives different opportunities for raising capital. This may be by issuing of new shares (the purchase of which, by the new shareholders, brings capital into the Company) or by offering the Company as security (or collateral) for any mortgage or debenture that the Company takes on gives the lender more options and therefore more security.

Arranging security for a loan can be both cheaper and easier for a company than an individual.

It is possible for a shareholder to have his or her own lending to the company, secured by way of a debenture. In the event of the company experiencing financial difficulties, eventuating in a wind up of the company, the debenture holder would stand to rank ahead of the unsecured creditors in distribution of the residual assets.

A Company facilitates continuity. A Company as a 'separate entity' is not limited to the lifetime of any one particular shareholder. If a shareholder wishes to sell or otherwise transfer part or all of his or her shares to another party, the Company continuity is not affected. This would be different with a sole trader or partnership. Both of these business forms would have to create a completely new entity.

So to recap the advantages are-

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