There are a number of reasons why a business owner should incorporate either at the first instance or perhaps once the business becomes profitable, depending upon the circumstances. Here are seven reasons why a business owner may wish to incorporate
- Limited liability. The classic feature of an incorporated company is that it affords limited liability to its shareholders. What this means is that should the company ever be sued or face an unfortunate circumstance with its creditors, only the assets of the corporation are at risk. This can provide some comfort to a shareholder that his/her personal assets such as the family home are not put at risk. Of course, depending on the circumstances, these basic rights may be altered, for instance if the shareholder has signed a personal guarantee.
- Separation of business income and expenses from personal. If a business owner operates as a sole proprietorship, the business and personal assets are often comingled. This provides a burden in terms of calculating proper revenue and expenses, for your own purposes and also in preparing a tax return.
- More flexibility for planning. A corporation affords a multitude of planning opportunities both from a tax perspective and also from a shareholder perspective.
- More credibility. An incorporated company, as compared to a sole proprietorship, is generally afforded more credibility as a growing business.
- Flexibility. Incorporation provides much flexibility in terms of selling a business. With an incorporated business, the assets and liabilities are separate from that of its shareholders and, as such, it provides a cleaner picture for a prospective investor to later purchase the business.
- Separate access to business loans. With an incorporated company, the company may have access to business loans and credit.
- Future investors. An incorporated company allows additional investors whether they be third parties or family members to join in the business.
The above are just a few of the reasons why a business owner may wish to incorporate. To discuss whether incorporation may be right for you, please contact one of Key Murray Law’s business and corporate law lawyers.
Legal information appearing in this article and elsewhere on Key Murray Law’s website is intended for informational purposes only and is not intended to substitute for or replace any legal or other professional advice. If you have specific concerns or a situation in which you require legal advice, you should consult directly with one of our lawyers.