By Dominic Dunnett
Are you thinking of moving your idea or existing business to the next stage by incorporating? If so, here are a few points which are worth considering:
An incorporated company has a seperate legal personality. This means that it can enter into commercial contracts, employe staff, lease property as well as have its own obligations and liabilities.
Incorporation limits the personal liability of the owners which is of critical importance when undertaking major contractual obligations. This provides protection for the owners’ personal assets against commercial risk - but beware of granting personal guarantees to Banks that remove this protection!
Structure and Governance
Incorporation gives the founders the ability to rest upon a sturdy legislative framework and a chance to work under a strong tradition of corporate governance.
Incorporation also gives the founder a chance to formalise ownership by holding the shares. This gives you a legal slice of your business, but on the other hand, also gives you a further slice of any liabilities (subject to point 2 above).
Incorporation inevitably comes hand in hand with regulation and strict disclosure requirements. These are designed to give the public confidence in your company – but bear in mind that such openness also has the potential to have the opposite effect if things aren’t going well.
Banks and Financial Institutions
In this day and age, incorporation is almost a standard requirement before providing loan finance.
You need to have incorporated if you’re planning on seeking any form of equity finance in the future.
With ownership of a small business, you are also likely to be one (or the sole) director of your company, in a position to steer the business in the direction that you see fit. However, remember that the position of director comes with a range of responsibilities.
In the majority of cases, the benefits of incorporation outweigh the negatives. However, when it comes to deciding on incorporation of your business, it’s worth seeking professional advice, in particular when it comes to tax treatment. If you need any help, or contact details for an accountant who can help, just give one of our team a call.
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