While many business owners give a lot of thought to location, store décor, customer service, hiring employees and management issues (and rightly so); choosing the proper business structure (such as sole trader, partnership, corporation, limited liability company) doesn't get the attention it deserves.
Many entrepreneurs don't realise this, but the business form they choose can often at times be the difference between success and failure, especially in today's competitive and litigious marketplace. If you want to succeed, you need all the advantages you can get. High on the list of safe bets is the corporate form of business.
Incorporating, while definitely not for everybody, offers several distinct and money-saving advantages over the other types of entities. Here are some of those advantages:
Asset Protection - If you operate as a sole proprietor or partnership, there is virtually unlimited personal liability for business debts or claims. In other words should you go out of business or be a defendant in a claim, your personal assets such as homes, jewellery, vehicles, savings, etc. are up for grabs. This is generally NOT the case when you incorporate. When you incorporate you are only responsible for your investment in the corporation. The limited liability feature of a corporation, while not a guarantee, is DEFINITELY one of the most attractive reasons for incorporating.
Easier To Sell - Corporations are generally much easier to sell and are usually more attractive to buyers than either a sole proprietorship or partnership. The reason for this is because a new buyer will not be personally liable for any wrongdoings on the part of the previous owners. If someone buys a sole proprietorship, for example, the new owner can be held personally liable for any mistakes or illegalities on the part of the prior owner…even if the new owner had NOTHING to do with the situation! This is usually NOT the case with a corporation.
Tax Savings - When you incorporate there are numerous tax advantages at your disposal that are virtually impossible to accomplish with other business entities. When you incorporate you create a separate and distinct legal entity. Because of this, there are many transactions that you can structure between you and your corporation to save money on taxes. For instance, if you own a building you can rent office facilities to your corporation and claim depreciation and other deductions for it. Your corporation can then claim the rental expense. You are prohibited from doing this if you are a sole proprietor or a partner in a partnership.
Easier to Raise Capital - When you're looking to raise money through investment or borrowing, a corporation can actually make finding and getting the money you need easier. If you want to take on investors you simply sell shares of stock. If you want to borrow, a corporation can add clout when dealing with banks or other lending institutions.
Perpetuity - As I mentioned in #3, when you incorporate you create a separate and distinct legal entity. This separate and distinct entity (the corporation) can endure almost forever irrespective of what happens to the shareholders, directors, or officers. This is NOT the case with sole traders, partnerships or even limited liability companies. For example, if an owner, partner, or member dies the business AUTOMATICALLY ends or gets wrapped up in legal red tape. Corporations, on the other hand, have unlimited life.
As always, be sure to consult with your Solicitor or business advisor before undertaking any important legal or financial decision. While there are many advantages and money-saving reasons to incorporate, it's not for everybody.
To find out more about EDC Lord Business Services call 020 8862 8970.
