One major consideration you should never overlook when starting or running a business are the legal matters. Legal matters for businesses stays the same for all business regardless of the type and size of the business. However, you should not that they are only the same in the broadest sense but differ greatly when you get down to the nitty gritty. To clear up the confusion let me state a few legal matters wherein a business with a sole owner and a limited company both need to consider but vary greatly in how they need to operate in order to address those legal matters.
Management and Liability – For businesses with sole owners all managerial decisions fall on the shoulder of the owner. This also means that in case anything goes sour the owner will also shoulder all the liability (unlimited liability). For limited companies decisions cannot be made by one individual alone and must be approved by the board of directors. In case a company goes under the board of directors share the burden and only have a limited liability.
Profits and records – Sole owners get to enjoy all the net profits of his/her business making it easier in terms of legal matters as compared to the limited company wherein reports need to submitted to shareholders so as to show the accuracy of dividends paid to them. Auditing is a lot mot strict for limited companies although if preferred by a sole owner auditing can be done for his/her business (this is a good idea of course).
Taxes – The sole owner has to pay income taxes on the profit he/she makes while the limited company will be taxed corporation taxes. Shareholders need to declare the income they make from the dividends but that is beyond the scope of the company and should be filed individually.
Originally posted on March 19, 2008 @ 6:36 pm