The better financing facilities available to a company are often a major consideration in a decision to incorporate either to carry on an individual existing business or to commence a new one. A company can issue shares, ordinary or preference, and debentures, and give security for loans by way of floating charge on its stock and its future property.
The other advantages, perhaps not as important, to be gained from forming a company are nevertheless real ones. Members may, subject to the company's articles of association, freely transfer their shares and thus are able to realise their investment should they so wish. Furthermore, as a company is a legal entity its existence is not affected by a transfer of shares or by the death or bankruptcy of a member.
Incorporation does, however, also possess some disadvantages. Briefly, the main ones are:
The statutory requirements in regard to information that has to be disclosed to the Companies Office where, for a fee, members of the public are able to peruse it – a facility which is of some relevance to “take-overs”;
Restrictions on a company's powers to those contained in its memorandum of association may mean that some profitable new business cannot be undertaken because the necessary power is not provided; and
The inclusion in the Companies Act of numerous statutory obligations which, unless strictly adhered to, will result in penalties for officers of a company in default.
A decision to form a company obviously reflects a careful assessment of the foregoing pros and cons and any other relevant factors, such as the implications of incorporation for a businessman's taxation commitments and, to be soundly based, should not be taken without the advice of people well versed in the requirements of the legislation. But, as the statistics previously quoted indicate, company formation has proceeded apace and it is clear that even relatively small firms have found it advantageous to incorporate.