Whether you are starting your own business from scratch or have been an entrepreneur for a while, business incorporation has most likely crossed your mind. Businesses evolve, and with them, their business registration and legal entity needs.
There are many benefits to business incorporation for entrepreneurs and small business owners. Although this article can only contribute a couple of the reasons, here are some of the best.
Business Incorporation Benefit #1: Limited Liability
No other business entity has limited liability, which is where the actual business takes on a life of its own and assumes all of the risks involved with running a business. Therefore, the only people who have any sort of risk involved with becoming an entrepreneur are the shareholders - and they only carry the amount equal to the percentage they've invested. Sole proprietorships and partnerships don't have this luxury, and are on the hook personally for any downfalls the business may take. In a nutshell, this means that your personal property could be taken to pay off your business debts. The only way that can happen with an incorporated business is if (a) you are a shareholder, and (b) you've used your own assets as a guarantee against the businesses' success.
Business Incorporation Benefit #2: Corporations Are a Living Entity
The movie The Corporation touches on this theme. Basically, an incorporated business is a legal entity that can be sued, bought, sold and/or dissolved - but all must occur within legal guidelines. Unlike a sole proprietorship, where if the owner passes on the business is dissolved, a business that has been incorporated doesn't dissolve when its shareholders die. It lives on, and on, and on - unless a formal petition is made.
Business Incorporation Benefit #3: Raising Capital
Incorporated businesses have a much easier time raising capital than do businesses with other legal structures, mainly because they can raise money via selling shares to shareholders (although there are other reasons, but they are beyond the scope of this article). Although by selling shares you are removing some of the ownership you have of your entrepreneurial venture, share capital (in most circumstances) doesn't have to be paid back, nor does it incur interest. For many small business owners, this is a huge benefit to business incorporation.
Business Incorporation Benefit #4: Drawing Income
Business incorporation means that you, as the entrepreneur, can draw a salary from the business. And by carefully choosing when you draw your income, you'll be able to reduce your taxes substantially.
