Advantages And Risks Of Company Incorporation

Have you ever considered business incorporation for your company? As you would know, the big names in the business world are all incorporated businesses.

There are both advantages and risks to incorporating your new company. Knowing what some of these are ought to help you make the decision that is right for you, your business, your partners and any employees you may have now or in the future.

What is Business Incorporation?

Business Incorporation is the process by which your company becomes it's own entity. This differs from other kinds of businesses where you are considered the company.

Incorporation means that your business becomes almost like a person in it's own right – although, obviously, a fictional one! This fictional person then takes on certain risks that the business.

Business Incorporation comes with both advantages and risks.

What are the advantages of Incorporation?

Imagine this … a client comes to your office and slips over. They hurt themselves quite badly and are unable to work for awhile. The client sues your business … what would happen?

Well, if you're not an incorporated company, you could stand to lose everything you own – including your home and car.

The great thing about business incorporation is that when the business becomes it's own person, a lot of the risk associated with business (like being sued) is transferred away from you and to the business. This means, if the company gets sued the courts can't take away your home or other personal assets.

There are also many taxation benefits to LLC formation. These are different in every area, so you will need to go and speak to a taxation expert in the area in which your company does business.

Other benefits include that it's much easier to transfer ownership of an LLC company, that you can easily set up your own retirement fund and that you can raise funds through share offerings.

However, one of the best is that corporations have their own credit rating that is totally separate from your credit rating. This means that it doesn't matter what financial problems you have personally had in the past – the corporation has a completely clean slate.

Incorporated businesses can run forever – they do not have to close when the original founder dies, instead a succession plan can ensure that the business is handed down to a family member or to someone else in the company who is up to the job.

What are the risks of Incorporation?

While there are some great reasons for LLC formation, as with everything in life there is also a downside.

There may be taxation risks, particularly if you want to move states. This is something you need to discuss with your taxation specialist. However, if you think there is a chance that you may move state soon after incorporation, it may be wise to consider waiting until after the move.

Many people today believe that LLC formation is a low maintenance way of running a company, however this is not true. Incorporation can be a time consuming and costly process.

It can also be a very confusing process if you try and do it yourself. You should always try and have a lawyer or attorney help you with your new business incorporation.

Is LLC Formation for you?

Whether LLC Formation is for you or not is a very personal decision. There are both wonderful and not so wonderful things about business incorporation.

Now that you have some facts about the advantages and risks of business incorporation, you should go and talk to your business experts – your taxation advisor, your financial advisor, your accountant, your lawyer and anyone else involved in your business – before you make a decision about what to do next.

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