Friday, March 16, 2007

Limited Companies Using The Company Name

I frequently advise my clients who have their own businesses that for their protection they should form a limited company and run the business in the name of that limited company.
The principal reason for this advice is the limitation that is afforded against the liabilities of the business having to be met personally. The formation of a limited company with which to carry on a business is a well recognised practice and can give enormously valuable personal protection against unexpected claims or losses.

It may well be that the banker to the business will require a personal guarantee before a loan or overdraft is made available to the limited company. The landlords of the business premises may well require a personal guarantee before agreeing that they will accept a limited company as a tenant. However, if the trading of your business is carried on by and in the name of the limited company it is probable that, in the event of business failure, the ordinary creditors of that business will not be able to make claims against you personally.

Show the Company Name

If you have formed your business into a limited company then it is required by the Companies Act 1993 that the company's name is clearly stated in every written communication sent by or on behalf of the company and every document issued or signed by the company which creates any legal obligation on the company.

Clearly this must include all such things as your letterhead, invoices, estimates, cheques, etc. If the business is carried on using some name other than the official name of your limited company, you should ensure that the full company name appears on all your documentation in order to comply with this provision of the Companies Act.

Make it clear at every opportunity that your business is owned and operated by the limited company. If you commonly use a vehicle for business purposes, have the name of the company and the word "Limited painted on the vehicle as well as being sure that it appears on all your quotations and other business documents.

Personal Protection

This point becomes of particular importance if your business runs into financial difficulties. If a creditor thinks that there may be difficulties recovering a debt from your limited company that creditor will almost certainly consider whether the debt can be recovered from you personally. If, for instance, that creditor has received business order forms which make no reference to your trading as a limited company he may well be able to succeed in a claim against you personally and the advantages of you having a limited company will have been lost.

A case in point, decided about 5 years ago, involved the proprietor of a company which entered into a contract to give advice to a horticultural enterprise. The advice given involved the spraying of a crop. The advice turned out to be bad advice and the crop died. The Court of Appeal decided that the contract that had been made was clearly made by the horticultural enterprise with the limited company. Therefore, the proprietor of that company who had given the advice was not personally responsible for the losses that had been suffered by the horticultural enterprise.

I would be happy to discuss with you in more detail, in relation to your business or business proposal, the advantages of forming a company and the costs of setting it up.