Incorporating Your Business – Should You Do It?

Many businessmen regret starting their own business venture once they realize that they have not done sufficient research or asked themselves whether their finances, skills or business experience would be suitable for such venture. Deciding on what legal form your venture is going to take will spell the difference when you experience difficulty in your business later on.

You have options when forming a business – a sole proprietorship, partnership or a corporation can all be successful if you play your cards right. Each of these legal forms has their own advantages and disadvantages and a businessman should be well aware of their implications on his business venture.

Sole proprietorship is the easiest business venture to put up because you only have yourself to disagree with. You have absolute freedom to make every business decision whenever you see it to be fit. If you succeed in such a business setup, then you have nobody to share with – you earn all the profits should your business thrive. The sad fact is that this can also be a disadvantage since it can also mean that you will shoulder all the losses if the business fails.

A partnership will do well for business ventures that require more capital and more skills and expertise. Running a business is a multifaceted operation, which would require different types of skills – you and your partner could your respective strengths as individuals to focus on each specific part of running the business venture. This form of business entails that if the partnership succeeds, you split the earnings, while splitting the losses in case of failure. Even if you had invested a significant amount of money in the business, creditors may still want to get from your personal coffers if your business is in the red and they are trying to chase payment for a business expense or loan.

A corporation, on the other hand, would be the preferred business model, even if it can be quite involute in nature. By incorporating your business, you are introducing new players into the field, meaning new partners. This would mean no decision can be reached without the agreement of the majority of the Board of Directors. The most evident advantage a corporation has over other business types is that it is potentially the most lucrative business model.

Because a corporation is a separate legal entity from its incorporators and shareholders thereof, it would be the stockholders who would share in the debts based on their shares in the corporation should your business go into debt. This is called the theory of limited liability. As for the creditors, they are not allowed to seek payment from the stockholders’ own coffers.

You may choose to start up your business alone and run a sole proprietorship, but the option is open for you to incorporate once the time is right. True, there are more documentation requirements for incorporating a business but the advantages of incorporating a business far outweigh the disadvantages.

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