Many people are considering the option of incorporating their small business as it comes with many advantages. To do this the business owner has to follow some procedure to ensure that the company formation is genuine and legal by visiting a company house or registrar of companies. Some of the things required is for the business owners to come up with a Memorandum of Association which contains names and signatures of the subscribers who wish to form the company and the Article of Association which gives details of the Company’s internal management affairs running the firm as well as its liability. The standard corporation registration fees vary from one country or state to another. Prospective entrepreneurs should weigh their options well as incorporation have a large impact on the operations of any business venture.
There are many advantages that come with incorporating a company. The limited liability is one of the biggest advantages. As compared to incorporation of company in Singapore where the liability is on the business owner’s shoulder, the liability of an incorporated corporation is shared among the shareholders as per the shares they have invested in the firm. The individual is not held responsible for the debts of the company unless the shareholder has given a personal guarantee. Unlike sole proprietorship where the business is at a risk of ceasing after the death or incapacitation of the business owner, an incorporated corporation has capability of continuance. When the shareholders die or leave the business, or it changes hand, the company still continues as its existence does not depend on that.
With the number of shareholders in a corporation, raising money becomes an easier task making it easy for the industry to grow. Corporations have the ability to borrow money as well as the capability to sell shares and raise equity capital which cannot be repaid and incurs no interest. Shareholders can also determine how they receive their income giving them a tax advantage as they can take their income when they will have to pay less in taxes. The shareholders are also exposed to tax deferral potential as they can defer from paying taxes until a later time.
Corporations come with a set management structure as stipulated in their Articles of Association. This ensures that the firm follows specific procedures in their operations making it easy to manage it on a day-to-day basis. The shareholders are also able to become employees and therefore become eligible for reimbursement and deduction of expenses. There is also ease of ownership transfer through selling of stock shares. This is facilitated by the fact that these corporations exist as a separate entity.
Incorporating small business will come with many advantages such as tax deduction resulting to a lower tax rate as compared to personal income. It is also easier to invest in pension plans and other fringe benefits as a firm as compared to other form of industry. The shareholder does not need to become active in order to receive dividends from the company’s earnings.