I started my first business a good few years ago now, and when I started it my legal status was as a sole proprietor. As time passed and my business started to grow I looked into incorporating and the many benefits it brought to the table – after a little light reading I decided incorporation was something I needed to do something pretty soon – so I did it, and I’ve not looked back since!
When we hear the term “incorporation” we automatically think big businesses turning over millions of dollars – but that’s a bit misleading, because incorporating can bring with it some fantastic advantages even for smaller companies. Perhaps one of the greatest benefits I saw to incorporating my company was the liability aspect. As a sole proprietor, I was completely liable for any debts incurred by my business – so if it folded overnight with massive bills, I would have had to give up my own possessions in order to pay those bills. Obviously, not many businesses fold overnight with huge debts racked up, but it was a big worry to me. Now I’m incorporated however, the liability aspect falls entirely with my company – so if my company were to falter today it’d be extremely sad, but at least I wouldn’t have to wave goodbye to my car, and maybe even my house!
Liability isn’t the only factor you should consider when thinking about incorporating – tax is another big one. You’ll pay corporation tax when you’ve incorporated on all profits that your business makes, but corporation tax could be far less than you’d have to pay if you continued to trade as a sole proprietor but took the same amount of money. Tax breaks and advantages are a big reason why people tend to incorporate their company.
Other things to consider
When someone sees your company name suffixed with LLC or Inc, they know you mean business! IT doesn’t just look great either, you could find it easier to obtain credit or otherwise seek capital for your business. One of the main gripes for me when trading as a sole proprietor was having to display my home address and personal contact details – when I incorporated and moved into business premises that all changed, adding what felt like a layer of anonymity. It’s not that I didn’t want to hear from customers, it’s that I could never escape my business – I had calls from customers at all hours, now customers can only see my business details I can dictate when they can and can’t get hold of me. My business cell phone gets turned off at 7pm every night – leaving me to relax and enjoy my evening, hassle free – how’s that for a work/life balance?
As your business starts to develop and take off it’s important that you take the necessary steps to make sure you’re adopting the right structure. As mentioned earlier if you’re turning over a lot of money it just doesn’t make sense to trade as an individual – you’ll be paying far more tax than you need to. The liabilities side of things is also something to keep your eye on. You never know when someone could file a lawsuit against you – rightly or wrongly, it could cost you a lot of money, it’s best to limit the impact to only your business assets (which is possible through incorporation), if your ownership structure is still a sole proprietor, you could be liable for losing some of your hard-earned assets.
If you need any incorporation advice, or you just want to get on with it and incorporate your company ASAP – why not give us here at CorpNet.com a call? We can guide you through the entire process – we know how daunting it can look from the outside! Once the ball is rolling and your company is incorporated you’ll be kicking yourself for not doing it a whole lot sooner. Ownership structures may not figure much in your thoughts, but perhaps they should – choosing the right one could save you and your business lots of money further down the road.