Should You Incorporate Your Business? Here’s How to Decide
Have you ever wondered about whether you should incorporate your business? Choosing to incorporate a business isn’t a quick question, and it’s important to consider here that every business will have unique requirements. Nevertheless, it doesn’t have to be a major headache to decide, which is why we have outlined some of the key things you need to know about incorporating your business to help you find the ideal strategies going forward.
Should You Incorporate Your Business?
Setting up a business comes with numerous questions and decisions. One such question you’ll need to ask is whether you should incorporate your business. In other words, should you register as a limited liablity company?
What Does Incorporating a Business Mean?
Incorporating a business occurs when either a newly established business, or an already-operational firm, becomes a limited company. A limited company is recognized as its own entity from a legal perspective, which differentiates the business from its owners.
Many new entrepreneurs feel hesitant about the incorporation process, but it’s surprisingly simple to do with the right approach.
The Benefits of Incorporating a Business
Incorporating a business can offer numerous potential benefits, which may be worthwhile to consider as part of your decision. Some of the main benefits of incorporating a business include the following:
– Improved reputation: One of the main benefits of setting up as an incorporated limited business is that it enhances your business’s reputation. Incorporated companies can include terms such as LLC or PLC after their business name; this enhances their reputation.
– Limited liability for the owners: A further benefit of incorporating your business is that it distinguishes your business owners from the company. In doing so, because the business is a separate legal entity from the owners, any debts / liabilities are not incurred by the owner.
– Raising capital: If you form your business as a limited, incorporated company, you’ll have new opportunities to raise capital through selling shares in the business. This offers a new option to raise capital in order to grow the business or settle its debts.
– Easier transfers of ownership: Incorporated companies are able to easily and quickly transfer ownership through the use of shares. Shareholders are all owners in an incorporated company, which means that any party owning over 50% of shares in the business will immediately have a majority vote.
These are just a few of the main benefits of forming your business as an incorporated company. Now a days, you can register your company with online incorporation companies such as ZenBusiness or Northwest without having to hire a lawyer.
With this thought in mind, the above benefits may apply in several different applications. However, not every business will necessarily need to be established as an incorporated company. Of course, this begs the question: should your business be incorporated?
When is Incorporation Right for a Business?
At this point, we have outlined the key benefits of incorporating a business as a limited company. But when is incorporation right for you?
Well, the first question perhaps to ask here is: what are your liabilities? If your business does not have any liabilities, incorporating the business may not be as interesting an option. However, operating as a sole trader or partnership means your business will still incur the firm’s liabilities.
Next, do you plan to sell the business? If you are establishing the business to sell it later and make a profit, you may want to register as an incorporated company. This is since selling a business is substantially easier through the transfer of shares. As such, selling or transferring a business is far simpler if you initially incorporated the business.
Finally, you may also want to consider whether or not you will want to fundraise through the use of shares. Selling shares is an incredibly simple way to raise capital for your business. With this thought in mind, if you know you are likely to have high expenses coming up for future projects, you may want to consider whether becoming an incorporated company could be an easier solution for gaining investments. Moreover, so long as you maintain the majority of shares in the company (over 50%), you’ll continue to have control of your business (although with feedback from other shareholders).
When You Might Want to Avoid Incorporation
Avoiding incorporation is generally a good idea for businesses that don’t want to pay additional taxes. Incorporated firms need to pay corporation tax and additional income tax for the individual. There is also more paperwork involved with incorporating a business.
If you’ve been wondering whether or not you should incorporate your business, there are several factors you may want to consider as part of the decision. We’ve outlined some of these today to help give you some new ideas on where to start.
After all, while it can often feel a little overwhelming to decide whether or not you should incorporate your business, the decision is relatively straightforward. With this thought in mind, we’ve outlined some of the key reasons you need to consider. But remember: incorporation is not compulsory and an entirely optional process depending on your unique requirements.