When embarking on a new business, an owner can choose to set up a limited company. The limited liability company protects the owners of a private business by apportioning the responsibility for debts sustained by the business according to each owner's shares in the venture. If the company experiences significant loss, the owner's personal capital is retained. Owners of limited companies feel that the addition of "Limited" to their company name affords them a certain sophistication that will give the customer a feeling of increased assurance when purchasing from the company. In truth, many limited businesses are really run by sole proprietors who function from home in a home-office or basement room.
Your business associates, in effect, will become your board of directors in a limited liability company. There are companies on the market available for purchase. Their names are registered in their State. One may also opt to choose a name and build their own business. The procedure is not complicated and relatively inexpensive, generally costing between 2 and 3 hundred dollars.
The persons involved enjoy a level of legal protection should the business incur significant debt. This can sometimes mean the retention of homes and other personal belongings which might otherwise be lost. The initial investment determines the level of personal risk. These figures, however, are subject to change if the owner has given any financial promises or guarantees to other investors or financial and lending institutions such as a bank.
Allowing private individuals, other businesses or employees to purchase shares in the business is one way businesses raise money. Investors receive a portion of the profit if the company makes money. The more shares they purchased, or invested in, the larger the financial return will be on those shares.
As the director of a company, you will have certain responsibilities even though your private property is not at risk. As director you may become liable for the business debt if you are delinquent in your duties. If that causes the business to fail, you may be ineligible to be elected director of another company.
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