Q: I have been in partnership with a couple of friends for the past four years but we have now got to the point in the business where we are thinking that perhaps we should operate as a limited company. Certainly from everything I have read it would appear to be preferable from a financial point of view, since we are doing well and the future looks bright for us. What are the main things we need to consider?
A: There are of course always advantages and disadvantages to the way a business operates, in any form. What you need to do is weigh them up to see which way offers the most advantages, based on your and your partners’ needs. Forming a limited company is what is known as ‘incorporation’. A limited company is recognised as a separate legal entity and as such carries with it limited liability. Subject to fraud and /or misrepresentation, you would not be held personally liable for any of the financial losses made by the company.
One of the most important issues is to ensure that the incorporation is tax effective. As there is clearly going to be more than one shareholder in your case, you will need to have an appropriate shareholders’ Agreement in place. This may involve amending your company’s current articles of association.
It is worth bearing in mind that the structure of a limited company is much more complex than the collection of rights and duties which constitute a partnership. You should take advice from a lawyer experienced in company and commercial matters as to whether you have the right corporate structure. For example, it may be more appropriate for you to be operating through a group of companies headed by a holding company.