The benefits of incorporating your business are as many as the reasons you’d want to start a business in the first place. It is a step that’s definitely worth considering as a business owner/entrepreneur. We’ll lay out a few reasons why we think you may want to take the first step of incorporating your business, as well as the positives to doing so. Some of these include asset protection through limited liability, corporate identity creation, perpetual life of the company, transferability of ownership, an ability to build credit, raise capital, and flexibility with the number of business owners. Some of these will be broken down in this article.
Liability protection
A big advantage to incorporation is the protection it provides for your personal assets. As a sole proprietor, you are responsible for the liabilities of your business. This means that your personal assets can be seized to pay off company debt. A corporation, however, is a legal entity separate from its owners, and so there is no attachment between the two. In most cases, incorporating also limits the liability of shareholders to the amount they invested in the company.
Easy transferability
An incorporated business stands on its own; that is to say it exists as its own entity. It also means that the owners do not own the assets of that business directly. Assets, therefore, are owned through shares, which in turn own the assets. This setup makes it easy to transfer ownership of the entire business or parts of it to interested parties. It also makes for a more attractive business ecosystem for potential investors. This setup allows easy ins and outs without going through a complicated organisational structure. Even in a case where a business owner wants to pass on a business to a son or daughter, incorporation makes this process easier.
Creates a corporate identity
For those to whom it matters, simply seeing the ‘LLC’ after a business name can induce feelings of trust in that company. Potential investors, lenders, suppliers, customers and employees will get the idea that you are thinking long term. That being said, incorporating a business does require some additional cost and effort. It’ll also need to maintain a separate set of accounting records from those of its owners because it now stands as its own entity.
However, these inconveniences are worth the effort if your goal is to grow your business into a sustainable, long-term operation. After all, the big players like Apple, Nike, Pepsi-Cola, 123 Digital Limited all are LLCs (Limited Liability Companies). These are just a few of the benefits to incorporating a business; there are more than can be looked into before making a final decision.
