Incorporate Early to Obtain the Benefits

 

It’s usually profitable to form your company earlier rather than later. This is true regardless of the type of business and whether you choose to form a C corporation, S corporation, or LLC (Limited Liability Company).

 

Benefits of Incorporating Early Include the Following:

 

• Presenting a known or licensed image to customers, suppliers, and investors – becoming a company or corporation or LLC improves your reliability and status. As you are working to establish and develop relationships, having the “Inc.” or “LLC” added to your name provides you with an edge when competing for business. Another idea is to own the web domain in the name of the company.

• Greater ease in securing investment and funding – lenders usually prefer an organised business and may hesitate to give a loan to a sole proprietor. Sole proprietorships are regularly analysed riskier because there is no division or separation between the owner’s assets and the company (indicating the landlord can spend their money on them instead of the business). And some investors want a share of the business, which cannot be done in a sole proprietorship but can be in a corporation or LLC.

• Possible Tax Advantages – Incorporating your company may help reduce your tax bill, although you should verify with your tax advisor. Whether it will or not depends on several issues, including the owner’s income tax rate, whether the owner will reinvest income, and whether the landlord will be drawing a salary.

• Limited liability protection – There is no difference between your own assets and those of your company. If your business acquires debts (if you can’t pay your suppliers or business lease, for example) or an accident occurs, then you are individually liable for them. If a company or LLC owns the company, that corporation or LLC is accountable for its debts, not its shareholders or members.

 

Incorporate before you Sign Agreements to Enjoy Limited Liability Protection

 

As stated above, incorporation can save your money and assets from business liabilities. This is true for online markets as well as brick-and-mortar businesses.

 

Corporations and LLCs own their legal existence. The corporation or LLC can approve contracts, invest, borrow and lend money, and own property – all in its name. The person who controls the corporation or LLC does not have to practice their assets. Creditors can continue the business assets but usually cannot reach your assets.

Also Read: Company registration process

 

Incorporate Early to Build Business Interests among Founders

 

If a company has more than one founder, a fair understanding of ownership benefits supports the business growth harmoniously and effectively. In some companies, the intention is for all the owners to be equal. But in others, the purpose is for some owners to have more business or management benefits than others.

 

If your business has intellectual property (trademark, copyrights, and patents) or other property, incorporating could be an essential step in securing the business ownership of that property rather than any specific founder.

 

Incorporate Before Hiring Representatives Helps to Protect your Assets

 

Businesses that have or require to have employees should incorporate them before hiring them. Companies are commonly liable for their employee’s activities and blunders that are used in the development of their employment. If you run your company as a sole proprietorship, you as a person are liable and your assets are at risk. But, if you have incorporated, the corporation or LLC is the owner and takes on this liability danger.

 

Incorporate Before you Add Partners or Co-owners

 

Another great time to consider creating a corporation or LLC is when a sole proprietor needs to bring in a business partner as a co-owner. General partnerships (when two or more people go into business collectively without incorporating) have the same limitations as sole proprietorships – in particular, personal liability for the company’ debts. In addition to affording liability assurance, companies and LLCs make it simple to tell who owns how much, who has the choice-making authority, etc.

 

Is there any Drawback in Incorporating a Company too early?

 

 

One downside to developing a corporation or LLC is that it is more expensive than producing as a sole proprietorship. There are charges for organising or incorporating a company. Moreover, there are additional compliance conditions – such as having to support some records, select and manage a certified agent, file annual reports, hold shareholder meetings, etc., that sole proprietorships do not have to trade with. In addition, if the landlord prefers to discontinue the business, as a sole proprietorship, the owner just has to stop doing business. Organizations and LLCs have to go through a legal dissolution and winding-up process. So, if you are only in the outlining stages of incorporating a business, you may wish to hold off organising until you have more detailed plans for important matters such as contract relationships, hiring employees, and bringing on partners.

 

Once you recognise you’re beginning a business, you’ll find that there are several incentives for incorporating earlier in the method. You will be ready to approve contracts and other records in the corporation’s or LLC’s name and take far greater benefit of the limited liability and additional benefits incorporation can offer.