The South African company system is well developed and regulated. Here we discuss the advantages and disadvantages of Personal Liability Companies.
In this article, we will deal with PERSONAL LIABILITY COMPANIES … that end in “Incorporated” or “Inc.”
The South African company system is well developed and formally regulated; the governing body for companies is the Companies and Intellectual Properties Commission (CIPC) and all businesses are governed by the Companies Act (2008).
Other articles will deal with:
A Personal Liability Company is a private company that is mainly used by ‘associations’ such as Lawyers, Engineers and Accountants.
The principle difference between a personal liability company and a private company is that directors of a personal liability company, as well as previous directors, can be held responsible for the debts of the company. However, the owner of a personal liability company is considered separate from the company.
Advantages and disadvantages are the best way to determine how appropriate a personal liability company is to you.
ADVANTAGES OF PERSONAL LIABILITY COMPANIES
DISADVANTAGES OF PERSONAL LIABILITY COMPANIES
Separate Legal Entity
A personal liability company is treated as a separate legal entity, separate from its owners (or “Shareholders”).
Shareholders’ liability is limited, they cannot be held accountable for the debt or actions of the personal liability company.
Sale of Ownership
Transfer of ownership can be achieved with little regulation.
Personal liability companies last indefinitely, which provides security to the owners of the company. If professionals such as attorneys, accountant or engineers choose to conduct business as a “partnership” and one partner dies or leaves, the “partnership” is automatically dissolved and a new partnership needs to be established.
Owners of a personal liability company are free to decide how they want to distribute the profits to the members of the company.
Directors can be held personally liable for the debts and actions of a personal liability company.
Personal liability companies are subject to many legal requirements and regulations which can be onerous (however, this can also be an advantage as it creates certainty).
While incorporating a personal liability companies does not need to be expensive, it is more costly and regulated than establishing a Sole Proprietorship or partnership.
In most case, private companies require their annual financial statements to be audited.
Personal liability companies are not for the average business, they are usually used by professionals that are required by Law to have a greater degree of liability for the directors of the company.
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If you have a company or if you are starting a company you should have a Shareholders Agreement.
DISCLAIMER: THERE ARE MORE CONSIDERATIONS THAN WE CAN COVER IN THIS ARTICLE SO ONLY USE THIS INFORMATION AS A GUIDE. THIS INFORMATION DOES NOT CONSTITUTE LEGAL ADVICE. IT IS ALWAYS BEST TO DISCUSS YOUR SITUATION WITH AN ATTORNEY; CONTACT US AT 0861 88 88 35; firstname.lastname@example.org AND THROUGH THE CONTACT FORM ON THIS PAGE.
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