Why are startup owners relying on incorporation services? An analytical look.
According to recent data, startup entrepreneurs are increasingly beginning to rely on online incorporation services, rather than going with the conventional approach of hiring a specialized attorney or attempting to figure everything out independently.
The importance of incorporation is widely acknowledged, as it can provide startup and old businesses alike with a plethora of exclusive benefits. These include increased: tax write-offs, personal asset protection, and dependability - especially for potential lenders and other financiers.
In the US, the type of business structure that you chose will highly affect the type of regulatory requirements that you will have to follow, as well as the specific benefits that you will be able to enjoy, both financially and structurally.
For example, different structures (such as corporations and sole proprietorships), are subject to different tax rates- with the former paying significantly less. This is because, as separate legal entities, corporations are not subject to individual income tax rates; unlike a sole proprietorship, they have to pay corporation tax which is significantly lower than the higher-income tax brackets.
If you are interested in venturing into the world of entrepreneurship any time soon, you will likely be considering whether you could benefit from hiring an online incorporation service.
Below we will discuss the prolific benefits that are associated with incorporation in 2021.
Benefits of Incorporating Your Business
Let’s have a look at the four main benefits of incorporating your business in the US.
Legally Protect Your Business From Liability
Incorporating your business essentially means that your shareholders and the company will become two separate financial entities under the law. This so-called ‘’corporate veil’’ means that all directors and shareholders will be personally protected from any future debt accrued or loans borrowed by the company.
Simply put, any liability will be directed towards your company; financiers will not be able to claim any asset that belongs to you personally (such as a house or car) unless you have personally guaranteed a loan in the past.
This sort of protection is not present in unincorporated companies (such as sole proprietorships or partnerships) where creditors often rely on business owners’ personal finances to recover debts.
If you are interested in learning more about separated legal liability, you can check out this guide.
Improve Your Management Capabilities
Incorporating your business means that you (and other shareholders) will be able to benefit from an inherently improved management structure. You will also be significantly more likely to raise large volumes of capital due to increased credibility and brand image (further discussed below).
Since your company’s decision making will become centralized and all responsibility and authority will be handled by the appointed Board of Directors, potential investors will find your structure more desirable, since there will be no way for them to be held personally responsible for any wrongdoing or unconscionable conduct that was committed by the previous owners.
Being incorporated also means that the power structure within your business will be legally and adequately defined, and there will consequently be very little room for any employees or co-owners to manipulate or ‘’misinterpret’’ your decisions.
This is important, as an inadequately defined power structure in your company can significantly handicap the way in which you manage the day-to-day operations of your company, and can consequently significantly bottleneck your business’s long-term growth.
Proliferates Brand Image and Credibility
As briefly touched on above, incorporating your business translates to more credibility, trustworthiness, and reliability. This is because employees, lenders, and consumers alike tend to view corporations as more ‘’serious’’ given the long-term commitments involved and the indefinite nature of their existence.
Corporate identifiers used to name incorporated businesses (such as Lte, Ltd, etc) additionally tend to convey a similar effect, and this will mean that you will be more likely to attain financing in the future and expand your operations.
Conclusion
Generally speaking, incorporating your business can (and does) provide a variety of benefits for business owners. Having said that, it is not for everyone. As you will have realized, increased benefits come with increased legal responsibilities; this means that a corporation’s shareholders (and especially directors) will be subject to certain statutory regulations that a sole proprietor will not be.
We hope you enjoyed reading.