Minding Your Legal Affairs – VIII

Should You Set up a Company?

You run or wish to start a business. Should you set up a company for the business?

Some factors to consider in doing so:

(1). The company, not you, will be sued if something goes wrong;

(2). Property in your name, for example, your residence, would be protected in the event that a Court gives a judgment against the business;

(3). As owner of the company, while the company is trading, as a general rule, you are not personally liable for its debts;

(4). The property of the business is more readily identifiable as business property;

(5). A company has perpetual succession, meaning, it continues regardless of changes in its ownership, until it is wound up or struck off the Companies Register- the latter usually being for corporate regulatory non-compliance;

(6). With a company, membership in the business is by way of shareholding, evidenced by readily transferrable instruments, and unless there is a provision to the contrary, then a shareholder can easily get out of a business by transferring his shares to a third party;

(7). When a shareholder transfers his shares, he drops out of the picture entirely, both for dividends and for liabilities. The right of the shareholder to assign his shares or to sell his shares is not usually dependent upon the agreement of the partners, but is a right he has incidental to his shareholding, subject only to any restrictions contained in the articles of incorporation of the company;

(8). A company is expected to be managed by a board of directors, which, in the case of a small company, is often the same as its membership. However, in a large company, especially a public company, or even if not public, a company in which a large cross section of the ordinary public owns shares, the membership has the benefit of being able to separate “ownership” and “control”. The shareholders can, by the by-laws of the company, determine how much control its board is to have;

With the larger companies, the shareholder is little more than a source of needed capital for the company, and but for decisions required to be taken by shareholders, he contributes very little to the actual running or direction of the company; and

(9). A company lacks privacy in the sense that it is required to file certain information with the Companies Registrar, which information usually becomes a part of the Companies Register, and liable to be inspected by any member of the public. For example, it must file annual returns. It must notify of changes to its directorship and secretary. A private company does not need to file a financial return unless requested to do so by the Registrar, but a public company is required to do so.

(The above reflects the views of the Grenada Bar Association)

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