5 Signs The Time is Right to Incorporate Your Business
|Understanding your liability when incorporating your business
|Incorporating with a numbered or named company
When first going into business many sole proprietors and partnerships intentionally do not incorporate their business. This decision can be made for a variety of reasons including wanting to take the time to see if the business succeeds, not wanting to incur the additional costs of incorporating during start-up phase and being unaware of some of the advantages incorporating offers.
However, once a business has established itself there can be many advantages to converting from a sole proprietorship or partnership to a incorporated business. A few signs that the timing might be right to incorporate your business include:
- You are generating profits in excess of the salary needs of the owners. If your business can retain profits there can be significant tax benefits to you.
- You are looking for investors in your business. Having an incorporated company will allow you to issue shares in the company instead of taking on debt to grow your business.
- You wish to allow key employees to have an ownership stake in the business.
- You wish to transfer your business to your children. When formulating a succession plan, being incorporated increases flexibility and your ability to effectively tax plan.
- Your clients demand it. Some clients, particularly government departments, may require their independent contractors to be incorporated.
If you do convert your business to a corporation there are a few things you need to consider. For example, your business name registration will need to be amended, assets will need to be transferred into the corporation and and existing contracts with clients, suppliers or partners will need to be assigned or amended.