Do you have a great idea for a business, but aren’t sure if incorporating it is really worth it? Let’s go over why incorporating is essential to the future and the wellbeing of your business.
1. You shield yourself from liability
This is the most important reason to incorporate your business. Incorporating means that you establish your business as a separate legal entity, and therefore your personal assets and your company assets are distinct; clients and customers, banks, or other parties are unable to reach your personal assets via legal action towards your company.
2. Perpetual existence, management, and transfer of ownership
Perpetual existence means that regardless of what happens to the owners of a business (such as withdrawal or death), the business will continue to exist as its own legal entity. If your business is unincorporated, it will cease to exist if you are no longer able to operate it.
When you incorporate, the management of your business is centralized and established with a Board of Directors or Board of Managers. Shareholders (for a corporation) or members (for an LLC) will usually vote on the Board, or otherwise the company’s officers will do so. If your company is unincorporated and there is no established system of management, it may be difficult to ensure the power structure, accountability, or democratic governance of your business.
Regarding the transfer of ownership, incorporating your business makes this process much more straightforward, because shareholders are able to gift or sell their shares.
3. Tax advantages
Tax deductions are available for incorporated business for operating costs—such as, but not limited to: materials/production, employee wages, insurance and retirement, as well as travel expenses.
4. Strengthen the company’s image
An incorporated business holds far more credibility and therefore more customers willing to trust and pursue its goods or services. This credibility also extends to banks or any other potential investors—an incorporated business is far more likely to gain outside funding than someone who could, in investors’ eyes, be using funding for personal use instead of business.
While incorporating a business may just seem like unnecessary paperwork, it is an imperative step in creating a successful company. And here at Direct Incorporation, we make it easy.
