of management. This separation also enables a member of a company to be employed as its director. 20.4 DISADVANTAGES OF INCORPORATIONThe disadvantages associated with companies are relatively minor and should not be of serious concern to persons wishing to set up business in that medium. These include state regulation, incorporation and winding-up formalities and potential loss of control.20.4.1 STATE REGULATIONIncorporated companies do not have as much privacy as partnerships or sole proprietorships. Companies, especially public ones, have to file notices of its decisions and annual returns of its activities with the Registrar of Companies. The Companies Act 2006 provides a compulsory legal framework, with which all companies must comply. However, the rules contained in it, many of which have been relaxed for private companies, are designed to promote accountability and transparency. They should not be a hindrance to enterprise.Download free eBooks at bookboon.com
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BUSINESS ORGANISATIONS AND AGENCY372CORPORATE PERSONALITY20.4.2 FORMATION AND WINDING UP FORMALITIESFormation of companies involve more formalities and some expense in comparison to sole proprietorship or partnerships. However, the expenses and formalities involved in incorporation are now minimal while the process of incorporation is quick. Applications could be made online; the fee payable is as low as £15, and registration can be completed in 24 hours. An already registered company could also be bought “off-the-shelf” at a reasonable price. For a company to cease to exist it must be formally wound up and then dissolved. However, an official liquidator would undertake this process and the cost of the exercise would be born from the assets of the company. 20.4.3 POTENTIAL LOSS OF CONTROLOwners of companies may lose control of the business to outsiders who invest money in them. This possibility is more likely in public companies because shareholders of private companies are often able to restrict the transfer of the company’s shares by certain provisions in the articles and by the agreement of shareholders. However, in no company could control be lost if members with majority shareholding are unwilling to dispose of their shares. In effect, therefore, only minority shareholders could complain of loss of control. Companies may also be vulnerable to being taken over by other companies against the wishes of minority shareholders. Again, this is more likely in public companies and cannot occur if the majority shareholders reject the takeover bid. 20.5 LIFTING OR PIERCING THE CORPORATE VEILSometimes people may abuse the principle of incorporation and separate legal personality. They may form companies not for the purpose of engaging in genuine business but in order to defraud creditors or members of the public, or in order to accomplish other unlawful or ulterior purposes. An absolute adherence to the principle of corporate legal personality would enable such people to successfully argue that the company they used, and not themselves, was responsible for any wrongdoing. Moreover, people may register a company in order to
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