The advantages and disadvantages of incorporated business companies

Incorporation, as you are currently having your own business, if you try to make your business to be incorporated to carry on as a sole trader, before you plan to make your business incorporated, you have to consider about all advantages and disadvantages of incorporating your business. In this article, Mr. Phil Thow clearly explains you the benefits and drawbacks of incorporation. What are the important benefits by making your business incorporated? We can see them.

Important benefits of incorporation:

1. Personal Liability Protection - If your business is an incorporated company, it will own its debts as a separate legal entity. Your company’s shareholders are only responsible for all your company’s liabilities and debts. This responsibility is applicable up to the value of equity of company. On the other hand, Mr. Phil Thow assures, creditors of a incorporation are eligible to get payment from the assets of the incorporated business. They are not liable to gain profit from the personal assets of any shareholders, directors and officers definitely.

Suppose if you are an owner for a small business and your business is not incorporated, incase of your company getting loss, you have to settle all the debts from your own personal assets. According to these rules, personal liability protection is a major benefit of any business incorporation. Suppose if some owners are forming new corporations by investing small amount of capital, they can ask personal guarantees and through which they can reduce the risk of the lender. Besides, the incorporated business owners have to give their assurance personally to pay their tax repayments also.

Protection from Legal Action:-

According to the personal liability protection from debts, as Mr. Phil Thow explained above, perhaps if your company faces any kind of legal action, as an owner, you can take care of all your personal assets through a separate legal status. But you have to notice carefully one point that, if your company is found guilty of any criminal negligence, incorporation will not be responsible to protect you and your company officers from any kind of liability or prosecution in court cases.

Tax Advantages:-

Some incorporated companies if they are running by partnership or sole traders, they can get lower rate of taxation as it is business incorporation. Lower taxation is only to lessen the salary paid to the owners and this is due to the reduction of higher rates of personal taxation. This is useful to be taxed at a lower rate.

Mr. Phil Thow adds that according to the advice given by the professionals and experts, they are all different in nature and circumstances.

If your company is incorporated once, then you can get tax deduction from so many expenditures. This is one of the important benefits of corporation. For example, if you have faced any kind of medical expenditure, entertainment expenditure, vehicle or travel expenses, and expenses by making some kind of recreational facilities, pension costs - these are all tax deductible expenses. This is one of the remarkable cash benefits. If particular amount of money is in fixed for an approved pension, it is also tax deductible until it grows.

Raising new capital:-

If your business is incorporated, by raising your capital investment, you can simplify your shares. As your company is incorporated, it is easy to you to get loans and any kind of financial approval from financial lending institutions.

Transferring Ownership;-

If your business is incorporated, your existing shares will simplify the sale of your business in future. Suppose if an owner or director passed away unexpectedly, your company will run indefinitely.

Business Credibility:-

If you business is having name like incorporation or corporation, automatically it will get a positive awareness of long term financial stability.

Disadvantages of Incorporation:-

Double taxation:- if once your company is incorporated, then it is automatically subject to double taxation. That means all your company benefits will be taxed and in addition your company’s paid dividends from the “net profit” also will be taxed. Suppose if your company is not incorporated, the whole income of the owner from the business only can be taxed. At the same time, if your company is registered as “S Corporation”, you no need to pay double tax.

Statutory Compliance Costs:-

In incorporated companies you will have to face a lot of burdens as an owner in fulfilling legal matters, accounting requirements, and especially regarding cost and time in the staff matters. Also your incorporated company will have to be connected with fees for its on going operations.

Loss of flexibility:-

Your incorporated company as a separate legal entity has to maintain its finance separately from its owners finance. Due to this reason, an individual and as an owner or staff of the company cannot borrow money for his own expenses from incorporated finance accounts. This incorporated company has to follow certain statutory rules of what can do and what cannot do perfectly in financial matters.

The above said advantages and disadvantages of incorporated companies should be considered by you as a business owner before you begin the process of incorporation. This is better to you to seek legal advice as all cases are different.