How does a limited company benefit from being a separate legal entity?

A limited company benefits from being a separate legal entity primarily because it can continue to operate independently of ownership changes. This characteristic means that the company remains stable and continues its existence even if shareholders change or directors come and go. This continuity is crucial for long-term business operations, as it provides a sense of permanence that reassures customers, suppliers, and creditors. The company’s assets and liabilities are owned by the business itself rather than by individual shareholders, allowing for smoother transitions when ownership changes occur.

In contrast, personal liability of directors does not increase—directors typically have limited personal liability for the company’s debts. Limited companies do face more stringent financial disclosure requirements compared to sole traders, making the option related to fewer disclosures incorrect. Additionally, limited companies are indeed required to file annual returns, which safeguards transparency and accountability.