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COMPANIES

 

A company is a separate legal entity and is registered under the Companies Act 1993.  Assets are owned by the company and not by the shareholders of the company.  The company is controlled by the directors except for major transactions, which must be approved by the shareholders.

The principal advantage of a company is the separation of powers.  The company owns the assets and incurs the liabilities.  If the company should suffer financial distress then it is the company that is liquidated not the shareholders.  The shareholders liability is limited to their paid up shares.  They are not personally liable for the company’s debts.

This separation of powers also assists from a taxation point of view.  The shares in the company may be transferred without affecting the underlying assets owned by the company e.g. there will not be any depreciation recoveries on the transfer of the shares.  The major disadvantages include the extra compliance costs and the inability to pass on losses to the shareholders.  However, if it is foreseeable that the company will make losses then it can become a Loss Attributing Qualifying Company (LAQC) allowing any losses to be passed through to the shareholders.




 
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