One of the benefits of incorporation is that the company becomes recognised as a separate person under law to the shareholders (members), directors and other officers of the business operation. This concept is known as separate legal personality.
The principal reason for operating a business, or other enterprise, through a company/ incorporating a business as a company, is to benefit from what is known as limited liability. In essence, limited liability is a privilege conferred by the State whereby, in return for complying with certain conditions, an individual cannot be held personally liable for a company’s debts. Other advantages of companies include perpetual succession, i.e., the company continues in existence after its initial founders have passed away, thereby offering continuity.
These advantages arise because the company is a separate legal person, so the liability attaches to the company and not the members/shareholders or officers of the company. By extension, the company as a separate person does not end when the officers retire, or the members move on, etc.
Incorporating a company also comes with certain disadvantages, including that the company, members and officers are subject to company law and their directors are conferred with certain responsibilities and obligations – failure to comply with which can attract civil and/or criminal liability.
Companies are also subject to certain transparency requirements, i.e., certain information, such as financial information, must be made available to the public.
While certain unlimited companies can avail of exemptions from certain of these transparency requirements, their members cannot avail of limited liability.
Incorporation, and limited liability, are privileges extended by statute (law) and these disadvantages are to ensure this privilege is not abused.
Anyone considering incorporating a company should, therefore, take independent professional advice with a view to determining whether a company is the most appropriate legal structure for their needs.