forming a legal company

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University of Toronto Scarborough
Economics for Management Studies
Malcolm Mac Kinnon

Advantages of forming a limited company Author: Jim Riley Last updated: Wednesday 24 October, 2012 Advantages of limited liability for a company Whilst many businesses prefer to trade as a sole trader or a partnership, nearly all significant businesses operate as an incorporated company. The main advantages of incorporation via a limited company are summarised below: Separate Legal Identity A limited company has a legal existence separate from management and its members (the shareholders) Members' liability is limited ("limited liability") The protection given by limited liability is perhaps the most important advantage of incorporation. The members' only liability is for the amount unpaid on their shares. Since most private companies issue shares as "fully paid", if things go wrong, a members' only loss is the value of the shares and any loans made to the company. Personal assets are not put at risk. The protection of limited liability does not, however, apply to fraud. Company directors have a legal duty not to incur liabilities in their companies which they have reason to believe the company may not be able to pay. If creditors lose money through director fraud, the directors' personal liability is without limit. Protection of Company Name The choice of company names is restricted and, providing a chosen name complies with the rules, no-one else can use it. T
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