Many who are about to register their businesses come to a point where they might have to consider whether to register a business name or go through company incorporation, or refrain from registering their organization altogether. Though registering as a business name comes at a lesser price demand, incorporating your business comes with many financial and legal rewards.
This post presents to you benefits you derive when you incorporate that business over simply registering it as a business name.
Benefits of Incorporating Your Business
1. It Protects your Private Assets
Incorporating your business gives it what is referred to as “limited liability.” When you register as an incorporated company, it gives your organization a corporate identity other than the personal identity of its directors. A registered company, according to the law in Nigeria, as well as most other nations, is referred to a separate entity. It can stand on its own; make contracts, purchases, take on liabilities, carry out legal actions or own property.
The implication of this is that being an independent entity, an incorporated business is responsible for its own debts, rather that its owners. If for instance the company owes a hundred million naira, and is at a moment unable to pay, the assets of its owners would not be confiscated in the process. Instead, the company’s assets or rights only might be infringed upon.
A business name does not allow for such relief. The owner of the company and the company itself are one and the same. So, should anything go wrong with the business the owners directly bear the liability.
2. It Gives your Business a Competitive and Professional Outlook
Choosing to incorporate your company rather than registering as a business name gives it a more professional identity. Having at the end of your business name suffixes as “Corp.” or “Inc.” gives it an air of professionalism which it otherwise would not have. Public perception of your company matters, as prospective employees as well as customers tend to gravitate towards a more credible-looking business to work with.
Also, in some Nigerian government MDA’s, as well as MNC’s, there are rules that contracts are to be awarded to registered companies alone. So, registering as a incorporated business therefore gives your company much more competitive advantage in sourcing for external contracts.
3. It Gives your Business Continuity
We have said that an incorporated business is a separated identity according to the law. What that also implies is that the company can well continue to exist without the original owners. The company can still exist either in the case of the death of one/all the initial directors of the business or in the event that the original owners choose to sell the company to another.
What about in the case where one of the business’ major workers is imprisoned or incapacitated, and for instance, there is a need to sign a cheques? Who signs them? Incorporating a business caters for such possibilities.
The registering of a company is not only gainful for the everyday running of the business. As said earlier, it is needed when the need for a change of business ownership arises. This creates the possibility of a business remaining in existence centuries after its original owners are long gone.
4. It Helps in Raising Capital
A corporation has easier access to capital than non-incorporated business. One, an incorporated company can provide shares of its own stock to investors. These investors would ultimately provide more capital for the company’s needs. Also, when there is a need to get a loan, a commercial bank would rather offer loan to an incorporated company, than an unincorporated business.
Unincorporated business could only access capital through debts from family, friends or lending institutions, but the risk of the debt is borne directly by its owners. However, new shares could always be issued by registered companies to old or new investors.
Note though that public limited companies only have the right to provide shares for public ownership.
5. It Provides Tax Benefits
Since a registered company is seen as a separate entity, it is taxed by the law on its profits. The profits which can be taxed by the law, however, can be reduced. Expenses such as entertainment and travel costs, adverts and marketing costs, operating expenses, and so on can be deducted from the taxable profits
Deductions from the taxable income could also be made with employees’ health insurance, salaries, retirement and pension plans, etc. You’ll need the service of a tax lawyer or tax accountant here.
6. It Gives the Business Anonymity
Sometimes, investors may want to go into a business without being known in the public to be related to the business. Incorporating your business gives its owners anonymity. Since the business’ identity is separate from its owners, the owners, including public shareholders, could enjoy a level of anonymity from public view.
So, here are some of the benefits of incorporating your business. You might however want to seek professional advice on whether incorporating your business is the best decision for your unique business situation.