Day 156 Company characteristics revisited on law’s perspective

Company characteristics revisited on law’s perspective

The company has been referred as the best investment vehicle, because its nature as a separate Legal entity. Tomasic and Bottomley stated ‘the company is distinct person with its own personality, thus it is separated from people who invested money and people who managed it’. Under Section 124(1) ‘a company has the legal capacity and powers of an individual both in and outside this jurisdiction’. The advantages of incorporating a company are listed below.

(a)    Company’s liabilities are limited to its own. Through the case Salomon v Salomon & Co Ltd, the creditors cannot seek shareholder’s personal asset to recover debts when the business wound up. On the other hand, partnership has mutual liability, which is defined in Section 13 Partnership Act (1963).

(b)   Company has perpetual successes. It is expected to have unlimited life, which is not affected by the variation of ownership. Consequently, this feature has granted the business share transferability, see Regal (Hastings) Ltd v Gulliver. Through a comparative, other types of business may experience significant change if on death of owner or other circumstances. It is explained on Part 5 dissolution of partnership, Partnership Act (1963). Company has income tax benefit. The flat tax rate for company is 30%, compare to the marginal tax rate applied for sole trader and partnership up to 45%.

(c)    Company has multiple sources to raise funds. The power to issue shares of the company is set out in section 124 and 254A (1). Other types of business only can rise capital through owner investment or debts, they are lack of opportunity compare with company.

(d)   Company has the advantage of separate management. The company runs by the board of directors to carry out the best interest of the entity. So the management system can be specialized. The section 198A delegated general management power to the board. See Cleansing Filter Syndicate Co Ltd v Cunningbame In contrast, the decision making for the sole trader and partnership is made by their owners without other support, so it may lack of proficiency.