In most western countries it is possible to register a business as a limited liabilities organization. There are many benefits of trading as a limited company. They should be seen in the context of the risks that any business incurs when it operates.
Financial risks might be the most obvious. The aim of any business is to make a profit but this is easier said that done. Considerable financial risks are always involved as money must be invested and risked before profits can be made. Both the owners and the business itself will benefit by being fenced off from each other.
The legal risks that are faced by the average business far exceed personal risks face by any individual. A business has liabilities in respect of staff who may be injured or become disaffected. Regulatory bodies such as competition tribunals or health and safety regulators may also cause many difficulties and possible legal action.
In addition to financial and legal risks there are also personal risks. An owner may be struck down by disease or accident and be unable to carry on working. A natural disaster like a flood or storm could also cause unexpected disaster. In such cases a firm could find itself in trouble through being linked to the fortunes of a sole owner or partnership.
A firm that has registered as a limited liability organization is protected by law. If a business becomes bankrupt the director is protected from the creditors of the firm. They may not sell his house or personal assets in order to meet the demands of business creditors. This also benefits the business which will not be implicated in the personal affairs of its owners and directors.
Because it is a separate legal entity it enjoys a certain status. This might make it seem reliable and trustworthy when it comes to dealing with other companies and with the public. It could also put the company in line for tax breaks, depending on the country or state in which it is located.
Benefits of trading as a limited company may also include protection of a name and identity. No other business may appropriate the name of a registered company. Because it acquires its own legal identity it may carry on trading on its own merits even after its founder has sold out his shares or died.
