BUSINESS BLOG
Follow us:
By : Elizabeth Humbal, 09-03-2015
You start a business right at the garage of your home. As it grows, you begin to hire employees to help you complete more transactions and manage relationships. Now that your business is getting bigger, you're considering whether to register it as a corporation or to maintain its sole proprietorship status.

If you can relate to the scenario, you're not alone. According to Business Insider, there were 1.4 million corporations last fiscal year. On the other hand, sole proprietorships were at 19.4 million. This means that there are millions of businesses that, along with you, are torn between incorporating and maintaining the sole proprietorship structure of the business until it picks up. To help you decide, we list the reasons why it's much better to incorporate your business.

Divides Personal and Business
The first and the most important reason to incorporate is that it separates your personal property from that of your business. The two become distinct entities, so to speak. This boosts the confidence of potential stockholders to invest in the business as they know they are protected against personal liabilities. Whereas, when you're operating your business as a sole proprietor, if a consumer, supplier or contractor sues you, personal assets can be attached to satisfy the business' liability.

Grants Issuance of Stock Options
If you're the type of entrepreneur who wants to compensate the business stakeholders (employees, contractors and suppliers) by allowing stock options or giving discounts when they opt to buy in, this is a good option when you're just starting the business and cash is limited.You may form a pre-corporation arrangement that upon incorporation, the stakeholders will be entitled to equity or stock.

Allows Funding and Establishing Business Credit
If an investor wants to invest in your business, you would need a separate financial account for the business to accept the investment. That is why venture capitalists and other investors like to work with a corporation, because everything has been set up already, and that they knew that the investment would go to the corporation, not to the owner.

Gives the Business Credibility
Adding an Inc. after your company name boosts your credibility in the eyes of some consumers. Hence, you may find your sales grow after turning your business into a corporation. Another thing is that you can be eligible to join bidding or pitch for some contracts that require a legal company. On the other hand, if you want to sell your business, it would be easier for you to find a potential buyer since you have a legible company.

Offers Tax Benefits
There are cases where individual tax rates are higher than corporate tax rates. Moreover, corporations are often qualified to additional tax benefits and deductions that are not available to sole proprietorships.Many sole proprietors prefer being a corporation for so many reasons, even though it requires effort and ongoing filing obligations. It may be because they enjoy the benefits of being a corporation more than the difficulty they get from it. It's about time that you reap the same benefits that corporations get.
0 COMMENTS
Share on