All business carries with it an element of risk. Incorporation is one of the many steps that business owners can consider taking in order to minimize this risk, and maximize certain tax and legal benefits. In basic terms, incorporation is simply the process of forming an official business structure for your company.
Here are some of the benefits of incorporation:
Before you incorporate a business, you, as the owner, are usually solely responsible for signing any contracts, as well as taking out any loans or lines of credit. It is a personal liability that extends to instances where there might be cases filed against your company – that is, the lawsuit will hold you personally liable, which means that your personal assets and savings are constantly at risk. Incorporation protects the owners/stockholders against personal liability. As long as the company complies with all the necessary corporate formalities, then creditors and court judgments cannot reach an owner’s personal assets to satisfy the company’s liabilities. This is one reason people choose to incorporate before widening their customer base, since the risk of liability increases once you add on more clients.
Incorporating a company and issuing stock to the founders will give you a clear picture about how equity is split, reducing he chance of potential personal issues getting in the way of business agreements.
Banks generally prefer lending to corporations over unincorporated business ventures. You can also now sell your shares, and invite investors, venture capitalists and more, since corporations allow for different classes of stock.
In most industries, a formal business structure is required to win certain contracts. This is because many suppliers, customers and business associates perceive corporations as being more stable than unincorporated businesses, or individuals.
When you incorporate, it is usually the registered agent of your corporation goes on record, and not your home or business address. In addition to this, if you’d like to start a business and don’t want your involvement to be public knowledge, you can do so through incorporation.
While incorporation comes with important benefits, it may not be the best form for all businesses. We at Augment promise to offer you a clear and detailed picture about the best business path for your company.