There are advantages and disadvantages to setting up a Company.

ADVANTAGES

Limited Liability

The principle benefit of trading via a limited company has always been the limited liability for the company’s directors and shareholders.  If a limited company becomes insolvent and is wound up only the assets of the company are used to try to clear its debts. As long as the business is operated legally and within the terms of the Companies Law, directors’ or shareholders’ personal assets are not at risk.  The directors of the company have no personal liabilities and are not made bankrupt and are free to incorporate another company. The shareholders are liable only to the extent of any unpaid shares held. By contrast, if you trade as a partnership, or as an individual, the creditors can claim on all your property, including personal property, to satisfy the trading debts. If this is insufficient, you may be declared en desastre or insolvent. Depending on the circumstances an insolvent individual may be subjected to a wide range of disciplines and prohibitions in accordance with the terms of Guernsey law and may be disqualified from being a director.

Adds Credibility

A company structure communicates permanence, credibility and stature, even if you are the only shareholder, director or employee. The company is bound by company law and you as a director have given a commitment to operate within this. This sends a powerful message to your customers, suppliers, and other business associates about your commitment to the ongoing success of your venture.   Some businesses are reluctant to engage in commercial activities with a sole trader because of the lack of certainty. Choosing to be a sole trader can restrict the ability of your business to grow.

Easier Access to Funding

Funding can be more easily raised with a corporation through the sale of shares. With sole traders and partnerships, investors are much harder to attract because of the personal liability. Investors are more likely to purchase shares in a company where there is a separation between personal and business assets. In addition, some banks prefer to lend money to incorporated businesses rather than a sole trader and the rates and terms available may reflect on this.

An Enduring Structure

A limited company is the most enduring legal business structure. Companies have a continuous life. They carry on regardless of what happens to its individual directors, officers, managers or shareholders. Whereas if a sole trader or partner dies, the business may automatically end or it may become involved in various legal entanglements. Companies can have unlimited life, extending beyond the illness or death of the owners.

Easier Transfer of Ownership

Ownership of a company can be transferred by the sale of shares which doesn’t substantially disrupt operations or require complex legal documentation.  Companies also provide a convenient method to give an objective value to a business and to create an entity that can be sold as an asset.

Tax Planning

A Limited Company can benefit from certain tax allowances on business expenditure which would not necessarily be allowable for a sole trader.  A Limited Company can retain profits for future investment in a much more tax efficient way than a sole trader

DISADVANTAGES

• More expensive to administer than a sole trader arrangement (however this is often more than offset by savings in tax).
• The administrative burden of operating a company is heavier (using the services of a CSP such as Go-Corporate will minimise this).
• More robust accounts must be prepared including a profit and loss account and directors report. Accounting fees may therefore be higher, although not substantially so. Go-Corporate can help with this.
• Registration requirements mean that certain details of your company will be stored on a public register.
• Directors of the company have to comply with legal standards of care in conducting business.

A Corporate Service Provider, such as Go-Corporate, will be able to provide you with more information about the advantages and disadvantages of setting up a company in relation to your own personal circumstances.