Advantage and Disadvantage of Setting up a Campany
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A company is a legal entity that is separate and distinct from its members and shareholders. When a company is formed, it is said to have become “incorporated”. To register a Company, a lot of procedures need to be followed. Companies are owned by shareholders. A Company is registered under the Companies Act, 1965. Legal document such as the Memorandum of Association and the Articles of Association need to be submitted when registering a Company. There are two types of companies, namely The Public Limited Company and The Private Limited Company.
In Mal and Lisa case, a Private Limited Company will be used. As it is only 2 shareholders involved in the business, and both Lisa and Mal has decided to name the company as Smallco Sdn. Bhd. The owner of the company is called Shareholder, thus in this case, Lisa and Mal are the Shareholders of Smallco Sdn. Bhd. In a company, the Shareholder and the company is separate legal entity.
ADVANTAGES OF PRIVATE LIMITED COMPANY:
The main advantage of a limited company is limited liability. This means that Mal and Lisa are not liable for any debts or losses incurred by the company. The shareholders are protected against the loss of more than the capital they have invested in the business.
Limited companies are much easier to sell on. Ownership (or a share of ownership) is represented by shares and these can be easily sold without affecting the activities of the company. The flexibility of selling the companies has lead to another advantage of the company that is unlimited life or perpetual life. The business can continue more or less forever, unless the shareholders decide to terminate the business. The death or withdrawal of the shareholders does not affect the continuity of the business. If one day, Lisa and Mal decide to discontinue Smallco Sdn. Bhd., or venture into new business, they can sell off their share to any interest buyer without wind down Smallco Sdn. Bhd. Unless Smallco Sdn. Bhd. is pronounce insolvent or deregistered.
There are some other minor advantages, such as the availability of floating charges. This means banks may be more likely to lend to limited companies because they can more easily use the assets of the company as security for the loan. In the case of Smallco Sdn. Bhd., the premises, computer and the drawing equipment can use as security for the loan. Smallco Sdn. Bhd. can also hired or employed professional managers or staff to manage the business which will lead to efficiency of operation and eventually to business growth and expansion.
DISADVANTAGES OF THE PRIVATE LIMITED COMPANY:
After analysing the advantages of the Private Limited Company, Mal and Lisa must also look into the disadvantages of the Private Limited Company.
There are number of disadvantages. The