Weighing the advantages and disadvantages of a big decision that you are going to
make is a vital process that will arguably be more important in the long run than any decision that you will make along the way. Generally, decisions that appear to have many more advantages than disadvantages are ones that you should be taking. If you do not plan ahead before you make a decision, especially one as important as starting your own company, it is very possible that you will fail before you even begin.
The advantages of incorporating ones business are more than its identified disadvantages. If you want your company to grow and be more profitable you can try incorporating it and avail of its many benefits. However, it is also essential to study the following disadvantages to make sure that the company is safe from any eventual downfall.
Increase in paperwork and cost of operation since taxes for the company and its shareholders are separate. The company is obliged to pay and employ more people to process the increase in paperwork.
Tax flexibility and tax credits are not available to corporations. These means that the company is unable to apply for tax credits in case of losses.
The corporation may not be as limited in terms of liability most especially in securing loans; creditors will require guarantees for repayment which could very well come from the owner or shareholder's personal assets. This makes the owner personally liable to corporate debts by being a guarantor.
Incorporating ones business is also expensive when it comes to registration fees because corporations are more complex in nature compared to businesses under sole proprietorship or business partnerships. Fees could very well be expensive as there are different incorporating fees needed in establishing a corporation.
Now when it comes to the advantages of business incorporation, here are some of its key points:
Being a separate entity from its owners, the corporation has limited liability to debts owed by the company to creditors. It protects the personal assets and properties of the investors from being taken as payment for the corporation's liabilities. However, responsible business planning is needed to ensure that there is adequate capital for the growth and development of the business and protect it from rising claims of personal assets by the company's creditors.
Ensured continuity and transfer of assets by simply selling out stocks in case of owner or shareholder's demise is a tactic that you will find useful. It also prevents family squabbles in the turnover of assets and stocks.
Centralized management systems are developed to make sure those effective and modern strategies in business planning and administration is implemented within the company.