While there are indeed some visible advantages of going your business endeavours as an individual such as a sole trader or personal consultant, such as limiting overheads for example, generally it’s much better to incorporate your business formally. Yes, there is a lot of due diligence required to formally incorporate (actually in some instances it isn’t that bad at all and it depends on your geographic location), but once you have that piece of paper listing you as a director and shareholder, a lot more doors can be opened up to you.
Separating your personal liability
This is perhaps the fundamental reason behind seeking to formally incorporate one’s business dealings because it basically just covers your legal bases. When there’s otherwise no company to be sued then you as the sole trader assume the legal liability, personally, which means your personal assets can be seized to cover the ensuing liabilities. You don’t want to lose your house over some legal issue which has nothing to do with your personal affairs, for example, but rather has everything to do with your business operations.
Beefing up your credibility
Yes, while more and more people are working remotely and more and more companies are doing business with remote workers, there’s still an air of credibility tied to a formally incorporated business with a permanent business address and land line. It’s a shifting paradigm, granted, but traditions in the business world still associate formal incorporation with credibility.
Compliance with R&D funding requirements
Some of the best sources of funding you could ever get for your venture, idea or business are those which originate from the state’s coffers. The government is always keen to fund research and development projects which have the potential to produce a solution to common problems faced by the public or by the government itself, in which case you will definitely need to be a formally registered business entity in order to comply with the funding requirements.
Unless your name is the complete opposite of John Smith and is super catchy as well, you’ll generally have a hard time establishing your name and surname as a brand. That’s the preserve of celebrities, otherwise a formally incorporated business naturally has a brand identity which can be built up to eventually grow into one that’s easily recognisable around the world. That’s one of the best forms of marketing.
To incorporate or not to incorporate?
So, how then do you know if you should formally incorporate your operation so that this action falls in line with the advantages of incorporating over operating as an individual? It’s as simple as this – if the frequency with which you’re going to use certain business-to-business services means that you can use that frequency to get a discount, then it’s definitely time to incorporate. Sure, there are legal service providers such as the Khan Law Firm which offer free consultations as part of their specific offering, but that still doesn’t mean you shouldn’t take advantage of what are usually huge discounts afforded only to formally registered businesses which complete regular, bulk orders.