Are you a sole trader wondering whether or not you should incorporate your small business? Hopefully this article will spell out some of the key benefits that you could expect to see from small business incorporation.
Incorporation could be the right step for you if you’re planning to grow your business going forward. Incorporation will make it easier for you to attract additional funding, either in the form of capital investment or loan finance. Also, should your business hit financial difficulties in the future, incorporation will give you limited liability protection from the company’s debts and liabilities. We’ll discuss these benefits more fully below.
Firstly, let’s discuss why incorporating your small business makes it easier to raise additional funding for the growth of your company.
Incorporation provides your business with a formal share structure, and so the issuing and valuation of shares becomes significantly more straightforward, making it easier to raise funds via additional capital investment.
Incorporation also gives your company increased credibility with the financial institutions and therefore makes it easier to attain additional finance.
Next let’s look at the subject of personal liability protection.
When you incorporate your small business, it’s status changes to become a totally independent legal entity. As a result, you get personal liability protection from any debts incurred by the business. Once incorporated, as a shareholder you will only be personally liable for the debts of the company up to the amount of equity you invested in the newly formed company.
In other words, the business’s creditors will only be eligible to payment of amounts owed from the assets of the incorporated company and not from the personal assets of the shareholders and directors.
Personal liability protection is obviously one of the most attractive benefits of small business incorporation. It effectively removes the risk to your personal assets that comes with being the owner of a small business.
As well as the benefits already mentioned, there may also be tax advantages to incorporating your small business.
Before you decide for sure to start the small business incorporation process, you should always seek professional advice from a qualified financial expert, as individual circumstances are different.