The decision to create your company into a legal corporation is all about protection. Protecting your assets. Protecting your business. Protecting your liabilities. Protecting your revenue. Protecting your return on investments. It is about protecting the owner(s) from personal liability for corporate obligations and debts. Basically, it is a legal body in the eyes of the law.
A question that often arises in this respect is; why and how to incorporate it. With the building of competition in startups and home-based businesses, it has become really difficult to pick up the pace and ensure longevity without some level of a business structure.
When you’re a sole proprietor of your business, you have to manage multiple aspects of it. This is how you can get caught up in generating revenue and eventually end up ignoring the financial responsibility of the structure of your business. This is where the chance to incorporate your company saves your business. It takes you to greater heights and ensures the success of your business and its assets.
Here are six reasons you should incorporate your company:
The biggest benefit to you when you incorporate your company is that the corporation establishes protection from personal liabilities. As a separate legal entity, a corporation is free to be completely autonomous in how it operates. It also helps take the focus away from a single person and preserves anonymity (meaning your business does not have to operate under your name, but the business name). This way, the owners and co-founders of the company can do business without any threats or risks to their savings or property.
A corporation can continue to serve as a legal identity, even if the management changes. This means that whether you decide to sell the company or change roles, the corporation will always give you a higher value and keep you functional in all circumstances. A functioning corporation saves you from numerous legal entanglements.
Binds All Stakeholders
Most of the potentially strong startups end up getting nowhere due to disparities and arguments over equity, as many begin with friendships (meaning there are a lot of verbal agreements that take place). At the initial stages, no one demands anything because there is no immediate return on investment (ROI). However, once the startup starts seeing consistency in profits, conflict can arise over the distribution of its equity.
Incorporating your company, however, prevents these arguments and issues formal paperwork for the distribution of equity.
A corporation can make it easy for you to attract investments and funding. Since a corporation has shares of stocks, stock options, or investment opportunities, it makes it attractive for your company to grow in the market. This fact can help attract venture capitalists and potential investors.
Makes Your Business Credible
One advantage that incorporating your company gives you is an established business entity. This will allow others to see you as credible and worthy. So, if you are working as a business, incorporate your company. This small trick can do wonders in increasing the awareness of your company and help it secure capital investments and funding.
Offers Tax Benefits
One significant benefit of incorporating is the ability to receive tax benefits. On your personal taxes, you cannot include losses; however, if you have an incorporated business, you get the benefit of reporting losses. While profits are important and have to be reported, reporting losses is advantageous for business because losses include write-offs, expenses, and fees.
Some entrepreneurs think that getting their company incorporated can lower their autonomy because of regulations and restrictions; however, there are more benefits to incorporating. The early stages of your business are the perfect time for getting your company incorporated.