Most businesses start as an individual pursuing a business activity in his personal capacity. Usually that individual trades as a sole trader and will be personally liable for all the debts of his business.
A sole trader who transfers his business to a company:
- Can take advantage of the limited liability status of a company and will no longer be personally liable for any new debts of what will then be the company’s business (although the company’s lenders and others may want personal guarantees from the individual[s] behind the company).
- Often attracts more business - many business customers (and suppliers) will only deal with companies.
- May gain tax advantages - you should speak to your tax adviser about this.
- Often finds it easier to deal with new investment and new management. A new investor can subscribe for shares in the company and be appointed a director of the company and there are pre-existing rules and law governing the relationship of shareholders and directors.