Starting an entrepreneurial venture can be discouraging when it comes to incorporating the business due to initial cost. But not doing it is a mistake.
It is not just about creating a professional image with stakeholders; incorporation comes with many other benefits. For instance, with their limited shareholder liability, easy access to venture capital, one can align multiple stakeholders’ interests and a different tax benefit. No matter the foundation of your company, these benefits are real.
And that is not all. Since a corporation comes under legal entities as far as the law is concerned, it will continue operating even in its founders’ absents.
So, what are the benefits of Incorporating a limited liability company? Let’s find out.
Liability is limited
Every business makes mistakes and can accumulate lots of debts. A person whose startup is not incorporated in a business structure will be held personally responsible for them. You will be taking an unnecessary personal risk if you run your business as a sole proprietor. The law does not differentiate between your personal assets and those used for the business. Hence, you may remortgage your home forcefully or even deny your children good college education to fund your business operations.
Limited liability is among the biggest pros to structuring your business. There is a reduction in the liabilities of shareholders. Your business runs as a separate legal entity from your personal life. Hence, it’s responsible for its own debts and liabilities. That is to say, the individual shareholders shield business liabilities. It does not affect their lives.
With limited liabilities, companies can make decisions based on their merits. Personal assets don’t come into the picture. As such, a business owner finds it easier to take business risks knowing that their assets are safe.
You share ownership
Shareholders run a business. It could be individuals or other business entities. That means the company is divided into portions and given out in the form of shares of stock. They can then be sold out without affecting the foundation and structure of the firm. The company is therefore made robust and more flexible in terms of sharing ownership. It is also a wonderful way to attract experienced managers and employees ready to bring better ideas onboard.
When business divide into shares, it becomes easier for the founders to share ownership and find new employees. Take the example of Ken, Mike, and Chris, who decide to start a cosmetics business. Ken is the wealthiest, and hence, he decides to fund the business in its early stages. In return, he gave the largest share, as they split the business in a 50:25:25 ratio. Since everyone is a shareholder, it becomes the greatest interest of each to see the business succeed.
As the business expands, founders get more flexible in operations because they can issue stock. Even if none of the founders have management experience, they can hire an experienced CEO to do the job for them https://ideaschedule.com/
More Access to Capital Investment
Investors are more willing to fund companies with limited liability. Financial institutions, angel investors, and capitalists all seek to minimize unnecessary risk when investing. And since incorporation means limited liability to the amount invested, it makes the business an attractive venture to investors. You can never get such benefits from a sole proprietorship.
Another crucial issue you can face as a sole proprietor when looking for partners is that it does not have shares to offer investors. The legal structure of a business should easily accept an investment if it is to encourage such investment. In the case of a company, it’s easy to sell or transfer shares between the shareholders. If they wish to, a business owner can transfer their equity in a company and receive investment or give out new shares. Besides, we assume the investors easily exit from the investment by simply transferring shares to another investor.
Benefits from Taxing systems
Incorporation reduces the taxes you have to pay. That means your business gives you more revenues on what you take home. Taxation is done for proprietorships and partnerships based on the owner’s personal income. In other words, the profits from the business are the owner’s salary. On the other hand, we consider companies as separate legal entities.
Companies can also use deductions to reduce their tax burdens. It is normal for most companies to deduct some business expenses from employee salaries. And that works even better with tax deductions. Also, you can avail of rebate tax for specific types of companies as governments seek to promote businesses in certain areas.
Getting a Professional Image
You establish a professional identity when you incorporate your business your credibility with customers and suppliers increases as you present reliability. Also, this is a good way to increase revenue. It is a long-term solution as the business engages in different marketing activities that paint a professional image.
Consumers are becoming cleverer and more demanding. As such, they often prefer and incorporated company. It shows them the level of seriousness put in their products. In short, incorporating a business positively affects the image of its founding team.
Consider the clothing business we have shared above. And now, let’s assume that this is a partnership between you and Ken, not a limited company. Tragedy strikes and Ken succumbs to a road accident after drinking and driving. Since your company is not incorporated. And you have left complex dealing, costly legal issues asset concerning.
You never have to deal with such if your incorporate business. Owners exist independently and will continue doing so no matter what happens to one shareholder. And corporation will stop existing following a decision by shareholders and directors to dissolve.
It would be foolish to continue running a startup without a company without incorporation. Consider all the benefits we have discussed above, and you will never look back.