Advantages and Disadvantages of Incorporation

List the 6 advantages of incorporating a company

1. Separate legal personality

2. Tax advantages

3. Limited Liability

4. Transferability of interests/shares

5. Perpetual succession

6. Borrowing

List the 2 disadvantages of incorporating a company

1. Regulation and enforcement

2. Piercing the corporate veil.

What did Philip Gavin say about SLP

“The sanctity of the SLP provides an enticing motive behind incorporation.”

Explain the significance of SLP and its implications on shareholders

SLP means that the company’s assets are distinct from its shareholders’ assets and the company’s creditors cannot make a claim against the shareholders personally. A shareholder's only liability is to the company to pay for shares bought.

Which landmark legal case established Separate Legal Personality (SLP), and which Irish case affirmed it?

Saloman v Saloman and Redfern v O’Mahony

What are the tax advantages

coporate tax is 12.5% while the highest personal rate is 40%. Tax reliefs and benefits are more favourable to companies such as PRSI/pension.

Explain the advantage of limited liability

Under s 655, the liability of members is limited to the amount unpaid on their shares.

What was held in Barclay-Watt v Alpha

It was held that the director was not a joint tortfeasor for his involvement in a negligent investment scheme.

Why is limited liability important

It provides a vital safeguard for members, particularly in high-risk businesses.

What comment does Courtney make about limited liability of members v company

Incorporation limits the members’ liability only as the company “will be liable down to the very last penny.”

How does Courtney describe shares.

“an intangible accumulation of rights, interests and obligations.”

What does the transfer of shares do for other persons (cannot be done in partnership/sole traders)

It allows the company to give other persons “a slice of the action” without forming a partnership or giving away management of the company.

Describe perpetual succession

The company’s existence is not tied to the life of its members. Unlike sole traders/partnerships, a company continues to operate and contracts already in existence can continue to be enforced.

Describe borrowing

An incorporated company can avail of the use of a floating charge which is not granted for a sole trader/ partnership.

List some requirements of incorporation

compliance with statutory obligations, including perpetual annual returns, financial statements and adherence to corporate governance under CA 2014.

Explain why piercing the corporate veil is a disadvantage to the directors.

It is a disadvantage where the company goes insolvent and directors may be subject to close scrutiny by the HC if restriction/disqualification proceedings are brought. The directors may also be held liable for the debts of the company for reckless and fraudulent trading, or even prosecuted for criminal charges.

What was held in Re Shrinkpak Ltd

The court granted an order for liquidation where one company was using funds which had been fraudulently converted from the use of another company, which was in voluntary liquidation and the director of both companies was under the control of the same person.