If you’re an entrepreneur considering whether or not you should incorporate your small business, this article will help you understand the key benefits of small business incorporation.
Once their business is established, most business owners are faced with the option of continuing as a sole trader or incorporating their business. In particular, incorporation becomes more of a consideration if the owner is seeking to grow from a small to medium sized enterprise. In this scenario, the additional funding required to attain the growth will be easier to obtain if the company is incorporated. Also as the business grows, so to the risks associated with failure. The latter is also a reason for considering business incorporation.
Incorporating your small business will make it easier for you to find additional funding when required, either in the form of capital investment or loan finance.
Also, should your business hit hard times and incur financial difficulties in the future, incorporation will give you personally limited liability protection from the company’s debts and liabilities.
To begin with, let’s discuss why incorporating your small business makes it easier for you to raise additional funding to grow of your company.
Incorporation provides your business with a formal share structure, and so the issuing and valuation of shares becomes significantly more straightforward, making it easier to raise funds via additional capital investment.
Incorporation also gives your company increased credibility with the financial institutions and therefore makes it easier to attain additional finance.
Next let’s look at the subject of personal liability protection.
When you incorporate your small business, it’s status changes to become a totally independent legal entity. As a result, you get personal liability protection from any debts incurred by the business.
Once incorporated, as a shareholder you will only be personally liable for the debts of the company up to the amount of equity you invested in the newly formed company.
In other words, the business’s creditors will only be eligible to payment of amounts owed from the assets of the incorporated company and not from the personal assets of the shareholders and directors.
Personal liability protection is obviously one of the most attractive benefits of small business incorporation. It effectively removes the risk to your personal assets that comes with being the owner of a small business.
As well as the advantages already discussed, there may also be tax advantages to incorporating your small business.
Before you make the final decision to start the business incorporation process, I would recommend that you should always seek professional legal and financial advice from a qualified professional, as individual circumstances are different.
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