The Main Features of Limited Companies

Introduction to the Main Features of Limited Companies

Legal nature

A limited company has been explained as an artificial person that has been produced by law. The meaning of this is that a company has several rights and obligations that 'real' people have. It can, for instance, sue or be sued through others and can enter into contracts in its own name. This contrasts roughly with other types of businesses, like sole proprietorships and partnerships (i.e. unincorporated businesses), in which it is the owner(s) than the business which must sue, enter into contracts and so on, since the business has no separate legal identity.

Along With the rare exceptions of those that are produced by Act of Parliament or by Royal Charter, all UK companies are created (or incorporated) through registration. To make a company the person or persons wishing to create it (generally termed as promoters) fill in a few simple forms and pay a modest registration fee. After having surety that the essential formalities have been met, the Registrar of Companies, a UK (United Kingdom) government official, enters the name of the new company on the Registry of Companies. So, in the UK, companies can be created very easily and cheaply (for about £100).

Perpetual life

A company is generally granted a perpetual existence and so will carry on even in which an owner of some or all of the shares in the company dies. The shares of the deceased person will just pass to the beneficiary of his or her estate. The granting of perpetual presence means that the life of a company is rather separate from the lives of those individuals who own or manage it. So it is not influenced through changes in ownership that take place while individuals buy and sell shares in the company. Even though a company might be granted a perpetual presence when it is first formed, it is feasible for either the shareholders or the courts to bring this presence to an end. While this is done, the assets of the company are generally sold to make cash to meet the outstanding liabilities. Any extra arising after all liabilities have been met will then be employed to pay the shareholders. Shareholders might agree to end the life of a company in which it has attained the purpose for which it was formed or in which they feel that the company has no real future. The courts might bring the life of a company to an end in which creditors have applied to the courts for this to be done since they have not been paid amounts owing.

Limited liability

Because the company is a legal person in its own right, it has to be take responsibility for its own debts and losses. The meaning of this is that the once the shareholders have paid what they have agreed to pay for the shares, their obligation to the company, and to the creditors of the company, is satisfied. So shareholders can limit their losses to the amount that they have paid, or agreed to pay, for their shares. This is of great practical significance to potential shareholders because they know that what they can lose, like part owners of the business, is limited.

Difference this with the position of sole partners or proprietors. They cannot 'ring fence' assets which they do not wish to put into the business. If a sole proprietorship or partnership business discovers itself in a position in which liabilities go beyond the business assets, the law provides unsatisfied creditors the right to demand payment out of what the sole proprietor or partner might have considered as 'non-business' assets. So the sole proprietor or partner could lose everything - house, car, the lot. This is due to the law sees Jill, the sole proprietor, as being similar as Jill the private individual. The shareholder, through contrast, can lose only the amount committed to that company. Officially, the business operating like a limited company, where Jack owns shares, is not similar as Jack himself. This is right even if Jack were to own all of the shares in the company.

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