Business

Advantages and Disadvantages of Incorporating Your Business

Incorporating your business is a big step to take, so you will need to spend some time looking at the benefits and drawbacks associated with it. When you incorporate, you are turning your business into an independent legal entity of its own. Before you make a final decision, you will need to get all of the facts. This isn’t always the right way to go, as it all depends on what your specific needs are.

Advantages of Incorporating

There are quite a few advantages that come with incorporating a business, including:

The Liability Stays with the Company itself

In the case of a sole trader, the owner of the business is responsible for any wrongdoings. With limited companies, the business itself retains the liability in most cases. This means that the directors are not liable (most of the time). Directors have their own responsibilities to the company, and it is important to know what they are.

Increased Credibility

There is no question that incorporating your business will instantly boost your credibility. People tend to take these companies more seriously, so it will be easier to get customers. Sole traders can certainly do well on their own, but it’s usually more of a struggle. When you incorporate your company, you will be given a registration number that anyone can get on the web. A lot of people trust limited companies more than sole traders, so you should keep that in mind.

Tax Savings

One of the main reasons that so many people decide to go from being a sole trader to a limited company is because of the potential tax savings. You could save a lot of money over the years by choosing to incorporate, but your exact savings will depend on your business. You should consult with your accountant before making a decision based on this benefit alone.

It is Easier to Raise Capital

When your company is incorporated, you can raise funds for new equipment and other things by offering shares to investors. This can be a very effective way to get the money you need to expand your business.

Your Business will Endure After You Are Gone

If you are a sole trader, your business vanishes the second you are no longer around. If you choose to incorporate, you can pass your business on to someone else through a will. This is a comforting thought to some, but it might not matter to you at all. You should take this into consideration when trying to make the right choice.

Disadvantages of Incorporating

Some of the drawbacks that can come with incorporating your business include:

All Your Documents Are Available to the Public

When the incorporation process is complete, all of your documents will be available to the public. This includes how much your company makes, mortgage charges and your CS01 confirmation statement. All of these documents can be downloaded online in the form of a PDF file. Those who want to keep this information private should think twice about incorporating.

Compliance Requirements

There are some extra compliance requirements for incorporated companies that don’t apply to sole traders. You will have to fill out and submit certain forms each year to be in compliance with various laws and regulations. This can be somewhat of a pain, but it’s not a huge drawback. You will definitely need to know which specific forms you have to submit so you aren’t in violation of any compliance laws.

Responsibilities for Director

The director of the company retains full responsibility for the actions of their business. There are certain consequences that come with not fulfilling these responsibilities that you should be aware of before making a final decision either way.

The Paperwork

There is a ton of paperwork required to incorporate a business, and the whole process can be quite a pain. This reason alone is enough to deter many people from going this route each year. You should not make a decision until you know exactly what this process entails, because it might change your whole perspective on the issue. If you decide to go ahead with incorporating your business, you should try to get help with the paperwork from a professional. The more assistance you have, the smoother everything will go.

Should I Incorporate?

When it comes to deciding to incorporate your business or remain a sole trader, you have to take a number of factors into consideration. You should consult with a financial professional so you can make the best possible choice. Your accountant will be able to provide you with more insight into this decision so you don’t make a horrible mistake. It is crucial that you do your research beforehand so you can do what is best for your business as a whole.

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