Legal Business

LLC- Pros and Cons

Becky’s Story Continues…

Business started a bit slow for Becky but eventually things began to pick up and she started getting clients from all over the city. 6 months after startup, she had to hire two additional staff to help cope with the workload. Revenues were growing and business was good.

By the end of the first year, Becky’s business needs and capital requirements had grown significantly. She needed more staff, a new office in a better location with more space, office equipment for her new staff, two pool cars for her team to use when going out on client engagements, etc. Because her business was doing well, she was able to get a potential investor willing to bring in new equity to help with her expansion drive.

There was just one problem. Because she had registered her company as a business name, she didn’t have a shareholding structure that would have allowed her to value her company and issue shares to her new investor. She could only do this with a Limited Liability Company. She was in a fix.

She visited the Corporate Affairs Commission (CAC) and was told she could not upgrade her Business Name to a Limited Liability Company unless she first filed for cancellation of the existing Business Name. She got a lawyer to run through this process for her but sadly lost her established trading name (BeConnect) to someone else in the process of cancelling and re-registering it. She named the re-registered company BeckyWise Digital Limited.

Properly communicating this new name to her clients and network came at a cost to her business. Luckily for her, her potential investor was patient enough to wait for her to go through the re-registration process which took almost 3 months.

Case analysis

The Limited Liability structure is the most common entity for business owners and the first structure you should consider when incorporating your business… especially if you see your business expanding any time soon. The benefits of registering a Limited Liability Company surpass those of Sole Proprietorships or Business Names.

Who can register a limited liability company?

A minimum of two (2) to fifty (50) persons can register a Limited Liability Company (N.B. you should have a solid partnership agreement with your partners outlining how responsibilities will be shared). So as long as you and your partners are adults of sound mind and have not filed for bankruptcy, you can come together to register a Limited Liability Company.

What do I need?

You will need to choose a name that is distinct, be clear on your objects (as this will be listed in your Memorandum of Association), the share capital (and how it will be shared amongst the subscribers of the company), means of identification and certificate of proficiency where applicable, payment for stamp duties and filing fees.

What kind of businesses fits the limited liability structure?

Generally any serious and viable business can qualify to register under the limited liability structure.

Pros

The company is a legal entity that bears its own risk and liability. Meaning, if the company is sued, your personal assets would be protected and they can only get as much as the company is worth

You are more likely to get loans from the banks.

A Limited Liability Company can be upgraded, go public, and be listed on the stock exchange.

The death of the members of a company doesn’t affect its continuity.

A company can be passed on from generation to generation.

Cons

The cost of registering a limited liability company is higher than that of the sole proprietorship

Amount paid on tax is also higher

A company is limited to carry on only business outlined in the Memorandum of Association.

In conclusion, it is always advisable to seek the services of a legal practitioner when registering your business so you do not end up limiting yourself.

I sincerely hope you’ve learnt something new today? Any questions or thoughts you want to share? Thank you!

 

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