A private company limited by shares is one of the most popular business structures. A separate legal personality, limitation of liability and a perception of sophistication and size all contribute to the reasons why businesses choose this option.
According to statistics published by Companies House, between the beginning of January 2016 and the end of September 2017, an average of around 160,000 companies were incorporated per quarter. There were effectively 3.7 million private companies limited by shares registered at Companies House as at 30 September 2017.
In the eyes of the law, a company is a person; it is a legal entity. Whilst it cannot take you to the movies, or listen to you complain about the kids, it can enter into contracts, sue and be sued, and carry out, from a legal point of view, anything that a person can. Additionally, it gives the people involved a shield in the event that things do not go to plan.
The benefits, then, seem to be clear, however, without proper advice and an eye on the future, problems can arise.
In a series of posts I’ll be examining some of the traps and pitfalls of operating within a private limited company without the protection of either a shareholders’ agreement or bespoke articles of association. As a corporate Lawyer who’s seen his fair share of disputes and dissolved companies as a result of poor preparation, I know the common problems and the simple solutions to avoid them.