Starting Small Business- Is Business Incorporation Necessary?

Are you thinking of starting a small business? Then the first thing you'll need to come up with is a Business Strategy! You're great idea or particular skill can become a hugely successful business with just a little groundwork first. One of the things you'll need to have a think about is Business Incorporation. This probably isn't the first thing that springs to mind when you think about your imagined business. Maybe you imagine customers coming in droves to your restaurant or clients who can't get enough of you. These customers and clients can help you build a successful business if you've laid the foundations right. Your Business Strategy should begin with thinking about whether business incorporation is necessary for you.

Your Small Business Strategy

It's your business right? Maybe you have a partner, a number of partners, or maybe you're going it alone as a sole trader. Starting small business owners have a huge amount of freedom. You're your own boss. As soon as you have staff, customers or clients it's a whole new ball game. As a small business owner, you're liable for every loss your business makes. If you've put it all on the line including your house and life savings there could be some devastating losses. What if your losses exceeded the value of everything you own? You're still responsible. If any of your staff file a lawsuit against you, or clients don't come through with payment, it's all on you.

Incorporation and Small Business

One way to reduce this liability is Incorporation. Incorporating your small business is a relatively simple process. You're required to file articles of incorporation with your relevant state office that outline the purpose of your corporation, the main place of business and share information. Your business name will have a legal ending as an Incorporation of either Incorporated, Limited or Corporation. You will need to select a corporation type and share type. Company directors will need to be elected. Your final step is the filing and processing of the incorporation. All of these steps can be taken with a do-it-yourself kit or you can appoint a lawyer to complete these processes for you. There's a little more work involved to be a corporation in the short term but you will probably benefit from it in the long run.

Incorporation as Part of Your Business Strategy

Incorporation has a number of other legal benefits for small business other than limiting liability. Corporations face lower taxes than individuals. A corporation can own shares in other corporations and receive tax benefits in the dividends they receive. Ownership of corporations is easily transferable in part of whole. Retirement funds are easier to establish through a corporation. Unlike a sole trader small business, corporations can exist indefinitely, regardless of death of shareholders, directors or officers of the corporation. Starting small business as a corporation makes the process of funding your startup business easier. By selling shares of the company, a corporation can raise money which would be difficult to find as a sole trader or partnership. Selling your business is an easier process too if it's a corporation. The value of your corporation will be based on the value of your company rather than your personal value.

Is Incorporation Essential for Small Business?

Business Incorporation is necessary to protect your assets. As a sole trader of a small business you're personally liable for the losses your business makes. This can affect your credit rating and the rest of your life. Incorporation limits your liability because the corporation becomes responsible rather than you personally. Corporations aren't liable for losses greater then the initial investment so as a corporation you're in a much safer place. Starting small business your personal Business Strategy should aim to protect you and any assets you have. Incorporation is the key to limiting your liability.

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