A corporation generally makes it easier for your business to raise capital or apply for a loan by giving it a sense of legitimacy. When you incorporate, it also means you can open up a bank account and start building a line of credit, which, for a small business owner, is a necessity.
Below, I go through the top 7 reasons why you should incorporate your business, no matter how small it is:-
1. Protect your personal assets from creditors
There’s no doubt that running your own business is exciting. But with that excitement comes the reality that accidents happen and (unfortunately) businesses sometimes fail. This is where one of the best benefits of incorporating comes into play.
If you haven’t incorporated your business, your personal assets are linked automatically to your business. This may include your car, your home, and even assets you obtain in the future.
2. Protect your personal assets from lawsuits
A huge benefit of incorporating a business is keeping you and your family safe and secure. Without incorporating, your personal assets may be at risk to anyone filing a lawsuit against your business. That means if a customer trips or slips in your store and takes you to court to collect damages, you may be personally liable.
For example, these individuals could try to collect on a judgment against you by seizing your home. Incorporation creates a solid barrier between your personal assets and legal claims against your business. If your company is sued, your personal and family possessions will generally not be at risk.
3. Tax benefits
Another benefit of incorporating your business, and one of the most crucial to leverage, is the many tax deductions available to incorporated businesses. When you go from being a sole proprietor to a business structure, numerous deductions available to individuals are unavailable. Specifically, you may see tax benefits such as:
- The ability to spread out your losses over a larger period of time
- The ability to deduct startup and operational expenses
- The ability to deduct employee benefits
However, keep in mind that tax laws are complex, and it’s best to consult a certified accountant before claiming any deductions.
4. Easier to raise capital
Incorporating generally makes it easier for your business to raise capital or apply for a loan by giving a sense of legitimacy to your business. When you incorporate, it also means you can open up a bank account and start building an overdraft facility, which, for a small business owner, is a necessity.
And plan to expand your business, whether that’s online or in-store. You’ll have a much easier time doing so when there are fewer barriers to raising capital, something that’s common for businesses that aren’t incorporated.
5. Build a better reputation
Incorporating can help establish your legitimacy with potential customers. This is a huge plus for your business’s branding.
If customers are shopping online and come across your business, they are more likely to view you as a trustworthy place to shop if you are incorporated. It lends a sense of credibility to any business.
6. Easier to transfer your business
Let’s say that you want to pass your business on to your children as you get older, but only want to do so in the event of a sudden illness. It may be easier to transfer ownership and funds when the business is a corporation than if you are running a sole proprietorship.
Whether for short-term or long-term goals, your business will benefit significantly from incorporating for this reason alone. Transferring funds and business ownership is easier when the business has its identity.
7. Stronger record keeping
When your business is a corporation, the Barbados government requires you to provide more details at tax time. You’ll need to supply them yearly, which may mean paying more for a tax professional and detailed bookkeeping. Although additional record keeping is often seen as a disadvantage to incorporating, it means you’ll have a clear, accurate picture of the overall health of your business, which is a benefit in my view.
Detailed records can help you secure a loan from a lender and give you insight into your expenses and profits, as well as where you can make key changes to improve the business’s financials.
If you have any questions, please do not hesitate to contact us at support@afbconsultingservices.com.