Incorporating Your Business 101

"To incorporate or not incorporate?"  That is your question. Consider both the pros and the con when deciding whether incorporating your business is the best choice for you.

"To incorporate or not incorporate?" That is your question.
Consider both the pros and the con when deciding
whether incorporating your business is the best choice for you.

To Incorporate or Not Incorporate - The Advantages of Incorporating Your Business.

You're on the threshold of starting a new business, and you have a lot on your mind.

Thoughts of business plans, loans, marketing, cash flow and other start-up issues boggle your mind.

And you in the midst of all of this decision-making, it is imperative that you decide on which type of business entity will fit your needs.

  • Will you run your business as a partnership, a sole proprietorship, or

  • Will you run a full-and-proper show by incorporating your business?

Consider this, the advantages of incorporating your business far outweigh the advantages of running your business either as a sole proprietorship or a partnership.

Do you know, for example, that each business entity has different implications when it comes to taxes, liabilities, and passing on your business to future successors?

One of the biggest advantages of incorporating your business is that it gives you a statutory name protection - something that sole proprietorships and partnerships do not offer.

Advantages of Incorporating Your Business

    1. Liability.

    Incorporating your business protects it by limiting its liability to the extent of its equity capital.

    • This means that if you run a business that is incorporated, then its liability towards its debts is limited to the extent of its capital when it comes to paying off debts in the event of winding up.

    • If your business faces a point of no return, then you personally do not have to cough up anything by selling your personal assets, unless you have given a personal guarantee.

    • This advantage is not available if your business is a sole proprietorship or a partnership

    2. Succession.

    The new saying is: Incorporate or perish! People pass away, corporations don't - unless you finish them off (by winding them up).

    • Until you wind them up, corporations continue to exist and their ownership keeps changing as their equity shares pass from one owner to another.

    3. Tax benefits.

    One of the huge advantages of incorporating your business is the tax angle.

    You can run a corporation on an "accrual accounting" basis - which means that you can recognize income and expense when they accrue, not when they are received or paid actually.

    • This helps you plan taxes and even minimize them with a little financial planning

    Apart from this, a corporation is also entitled to tax deferral benefits, which means that you can postpone paying your taxes to a later date.

    Plus, if your newly incorporated company is a small business, then you may fall in a lower tax bracket, as compared to a tax bracket that's applicable for an individual.

    4. Name protection.

    Incorporating your business gives you statutory name protection.

    This means that if you have coined an original, spicy name, for your company, such as Apple or Microsoft, incorporation will help ensure that it is not stolen.

    5. Raising money.

    Incorporating your business adds sheen, respectability and luster to your business.

    • People look upon you in a new light - they consider you as the owner of a company, a man who controls a corporation.

    • You command respect and you will find that raising money is easier.

    • Plus, a corporation can increase its equity share capital and raise funds by selling shares, without falling into debt.

    6. Wealth generation.

    Assuming your business is a success story, you can even list your shares on the stock market when you grow big.

    • This can create unprecedented wealth - something you'd have never dreamed about!

    Some Of The Disadvantages Of  Incorporating Your Business

    As with anything else, there are disadvantages of incorporating your business:

    • More paperwork.

    • You have to file a separate tax return for your corporation.

    • You have to maintain documents in accordance with corporate laws.

    • You can't set off personal losses against corporate income,

      This means that if your company is running into losses, the red ink remains in the Balance Sheet until the company starts making up for these losses.

    • For many startups, incorporating a company is an expensive line investment.

      Not only will you have the initial incorporation expense,

      But you will also have to face recurring expenses such as audit and tax fees, which add to the overall overheads.

    True, some of the disadvantages may appear like barbed wires at first, but once you get into the groove of business, you will get past them.

    Ask Bill Gates or Steve Jobs, and they will agree.

    Jokes aside, once you walk through the process of incorporating your business, you must adhere to the norms and follow the laws.

    Thus, if you decide that incorporating your business works for you, then you will need to

    • Maintain proper books and accounts,

    • Get your accounts audited,

    • Comply with tax and corporate laws,

    Incorporating Your Business Doesn't Have To Be Difficult.

    If you need a little help, you can contact your local Small Business Development Center.

    Also, there are companies that are dedicated to making the incorporation process quick, painless and easy for you

    Wishing you a successfully sustainable and profitable business,

    Signed: Latarsha Lytle, MBA, your business strategy advisor and motivational coach

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