Incorporation why

Shield yourself from liability The most important reason to incorporate your business is to protect yourself from business liabilities. If you are operating an unincorporated business, its creditors may be able to reach your personal assets. Assets such as your personal residence and personal bank account can be used to pay business debts or to satisfy a lawsuit against your business.

If you incorporate, business creditors cannot reach your personal assets, as an incorporated business and its owners are separate entities. Establish perpetual existence and transfer of ownership Perpetual existence is an advantageous aspect of an incorporated business.

Perpetual existence means that the life and continuation of the business will not be affected by the withdrawal or death of one of the owners. An unincorporated business's existence, as well as its operation, is generally disrupted by the withdrawal or death of one of the owners. Subtract this risk from your business by incorporating.

Similarly, the ownership interest in an unincorporated business may be very difficult to transfer. If the business is incorporated the shareholders can easily transfer their interest by sale or gift.

Gain tax advantages If you incorporate your business, there are tax deductions for a wide variety of operating costs which will substantially cut back your company's overall tax liability. Enhance the company's image Another essential reason to incorporate your business is that it adds credibility to its operation.

The perception of a business is improved by its incorporation and use of "Inc. For example, a person has purchased 10 shares of Rs each. His maximum liability shall be INR only. Now, as seen mostly in case of closely-held companies private companies , a member could not have discharged his liability. In such a case, he will be asked to settle his dues at the time of winding up of the company.

This is an incentive to the members since their liability is capped unlike a sole proprietorship or a partnership. Shares are considered at par with a movable property and hence transferable easily from one person to another. This aspect provides liquidity to the shareholders. Members are in a position to encash the shares at any time as they will.

In a public limited company, the shares can be transferred freely. Whereas, in a private limited company, the share transfer is not frequent due to it being closely-held, but is not prohibited. Since the management and ownership are distinct, experts in the field can be appointed for each function in the company.

This leads to improved accountability. The availability of resources makes it conducive to offer good salary packages and attract the best talent available in the market. Although there exists the separate legal entity concept, it does not absolve the owners from liability completely. For instance, the owner may have authorised a transaction for the company by signing in his own name, or guarantees a loan in his name or commits fraud.

In such cases, he shall be personally liable. Too often, people fear the load of filing and paperwork that comes along with the incorporation of a company. But the process of incorporation has been streamlined, and with guidance from the right experts, the work can be completed quickly and correctly.

A common misconception that lies in the minds of the people is that if the business is set up in any other form like a Partnership or LLP, it will reduce the tax liability. In most cases, banks would rather lend money to corporations than to unincorporated business ventures. Corporations generally have access to more alternative sources of capital through which they can pay off their debts.

The benefits of incorporating go beyond finances. Suppliers, customers and business associates often perceive corporations as being more stable than unincorporated businesses.

Corporations are the most enduring legal business structure. A corporation can continue indefinitely, regardless of what happens to its individual directors, officers, managers, or shareholders. This means that by incorporating your business, you may be able to avoid the legal entanglements that could result with other business structures.

A corporation can offer anonymity to its owners. As a separate legal entity, a corporation is taxed on its profits. Those taxable profits can be reduced by qualified business expenses, including operating expenses, marketing and advertising expenses, travel and entertainment expenses, and other costs of making a profit.