Deciding to take your idea to the next level could turn out to be as smart a decision as it is admirable.
However, prior to jetting off and becoming the next big thing, there are a few key formalities that you should address – one of them being whether or not incorporating (registering a company) is an appropriate decision.
We look at 5 of the key signs that it’s time to incorporate your startup business.
1. You’re gaining traction
Our first piece of advice is simple: don’t incorporate a hobby. However if you’re kicking some serious goals – whether you’ve become a household name or are building up momentum, it’s a good idea to incorporate.
By registering a company, you go a long way from safeguarding yourself and personal assets from any issue related to your vendors, creditors and customers. Incorporating creates a corporate veil between a business and its owner, which becomes increasingly important as your liability increases.
2. You’re raising funds
The formal structure of an incorporated business is a much more attractive proposition to an investor, due to the easy share transferability and the limited liability. Investment can be seamlessly accepted by incorporated businesses in exchange for company shares, something impossible if you’re operating as a sole trader.
Liability is again a consideration here, with unincorporated businesses often finding themselves having to turn to securing loans with personal assets.
3. You’re no longer riding solo
Even the healthiest co-founder relationships have the potential to go sour, and there are countless examples over the years of disputes turning into equity battles.
After incorporating, your company will be made up of shares. These shares can be owned and transferred by shareholders, meaning that dealing with departures or new additions can be managed seamlessly.
4. You’re launching an app or new feature
Again this comes back to liability. While a new product launch or mobile app can be a shot in the arm for your business, it means more liability to consider.
Incorporating ensures your business will be liable, not you personally, should anything go wrong.
5. Your tax is creeping up
The last thing anyone wants to do is pay more tax than need be!
Depending on cashflow, corporations can be taxed at a lower rate than individuals. As a company, you pay at the corporate rate of 30%.
By operating under any other business structure (e.g sole proprietorship or partnership) you would need to pay taxes on your personal income tax statement, even if part of that money was being kept in the business. This can quickly extend north of 35% once you’ve established yourself.
To conclude…
It’s a big step but it’s not just for big businesses. Whether you have a few employees or you’re starting off by yourself, incorporating your business is a vital step you do not want to leave out of your plan.
Traditionally startups incorporate through a law firm or accounting firm, however there are now a range of simple, cost-effective online solutions that can walk you through every step of the process. I’d recommend a bit of reading into on company structures and the process to learn what will work best for you.
