With the recently published Corporation Tax (NI) Bill, Celia Worthington, Senior Partner, considers the advantages of incorporation
There has been much debate over recent months as to whether the recently published Corporation Tax (NI) Bill, which allows our Assembly to reduce corporation tax rates for local companies, is a “silver bullet” for the Province. Currently the tax rate for companies is 21% and expectations are that the Assembly will reduce this to 12.5% from April 2017.
There are many good reasons why businesses choose to incorporate and, whilst tax has always been a major consideration for doing so, a reduction in the tax rate of this magnitude will make this an even more attractive proposition for some businesses. So aside from tax considerations, what are the other attractions of incorporation:-
. A limited company has its own separate existence from the people who run it. This can provide protection from personal liability for company debts.
. Shares in a limited company are transferable. All the rights of the promoters are represented in the shares. In an unincorporated business the process of divesting oneself of the business assets can be cumbersome and costly. Incorporation can allow the free transferability of interest from one person to another.
. There can be considerable sophistication in relation to the split of ownership and the ability to bring in external financial support by the giving up of equity in your business.
Having made the decision to incorporate it is important to give thought to a shareholders agreement in circumstances where there are a number of owners of shares. Such an agreement will deal with how and when shares can be transferred and new shares issued, provision of protection where appropriate or necessary for those holding less than 50% of the shares, rights to appoint directors and payment for directors, any dividend policy, how to finance the company and what happens to shares if anyone leaves the company or dies.
It is easy to assume that nothing can go wrong in your business when you have been in business for a long time but, if it does, the absence of a shareholders agreement can cost dearly.
Celia Worthington, senior partner of the Commercial Department of Worthingtons Solicitors Belfast Office