The Many Benefits of Company Formation

For many successful small businesses there will come the inevitable point where the question has to be asked, should the small business become a registered company? Company formation is something that lots of people strive for as it indicates a sign of success and demands some respect in many areas of the business world.

There are many aspects to consider when making the decision to go down the route of company formation and although it is not the right move for everyone for many it can be the platform to greater things. Company formation depends on several factors not least of all the company's annual earnings.

The process of registering as a company is straightforward but can seem longwinded as there are several documents that need to be completed and depending on whether you chose to register as a private or a public company. The company formation process for both is simple but with subtle differences that can often be confusing.

The process involves, among other things, choosing a company name, selecting an area to trade from and a business type, registering any company directors and specifying what type of shares in the company are offered.

It is worth considering taking advice on company formation from specialists. There are lots of companies that now offer to take care of the whole process for you, for a fee. If you are unsure about the process or do not feel confident to handle the whole process alone it may be that getting help will ensure that no mistakes are made which can slow the process down and even incur financial repercussions.

Once registered you are obliged to adhere to certain rules and guidelines, the company name must be clearly displayed outside any business premises and the company name and registration details must be visible on all company correspondence; letters, invoices etc. Specialists in company formation will be able to advise on all these matters and many more.

There are four types of company:

1. Private company limited by shares - A private limited company has a share capital. Shares cannot be offered for sale to the general public. The liability of its member is related to the amount unpaid on shares that each member holds.

2. Private company limited by guarantee - Members do not purchase shares but agree to contribute to the company's assets if the company is ever wound up.

3. Private unlimited company - This type of company can have shares but doesn't have to. There is no limit to members' liability and this type of company does not have to offer up as much information as other types.

4. Public limited companies are identified by several factors. A public limited company has a share. Shares may be offered for sale to the general public and can also be quoted on the stock exchange. The liability of its member is related to the amount unpaid on shares that each member holds.

In an increasingly litigious world many small and medium sized businesses are seeing the insurance benefits of company formation. Registering as a company legally separates the obligation of the individual and the business and recognizes the fact in law. This is useful for unseen circumstances including accidents to employees.

As well as the benefits of liability there are tax benefits. Often the rate of tax can be brought down considerably after the process of company formation. Raising money for a registered company is easier as it involves selling shares. It is also easier to value a registered company as it does not involve an individual's assets and so is easier to measure.

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