At some point of time, a sole trader or partnership will opt for business incorporation. The good news is that as of October, 2009, business incorporation in the UK is becoming easier and more profitable to companies.
Business incorporation - Pros
There are many factors that make business incorporation attractive to business owners. Low taxes and easier financial accessibility are noteworthy. Increased profits also play a part. Many small business owners have made considerable savings on taxes by minimizing the salary paid to owner and increase income through dividends, which attract lower taxes. Significant cash benefits may be derived from additional tax deductibles. For instance, entertainment and medical expenses, travel costs, recreational facilities and pension costs are all tax deductible.
The fact that business owners are afforded personal liability protection also adds to the allure of business incorporation. In case of a financial crisis (and we all know from recent experiences that a financial crisis can happen any time), creditors cannot confiscate the personal assets of the shareholders, directors or employees.
Add to this the credibility factor that results from business incorporation and you can easily see why more and more small businesses are becoming incorporated, even though many small companies may find that deriving the benefits of incorporation takes time.
Business incorporation - Cons
In case of limited liability, banks might need personal guarantees. So, there are restrictions on limited liability. Besides, small companies may even find that administering a limited company is somewhat costlier. So, unless there is a significant rise in pre-tax profits, it might make sense for small business to resist the lure of company incorporation. However, in case of a venture capital, incorporation is a must since capitalists will require an equity stake in the business, which is available only if the business is incorporated.
However, the Government has decided to make incorporation easier and more advantageous to business owners.
As of October 1, 2009:
Some of the forms that are currently used for incorporating will be changed or replaced.
The business incorporation process will become much easier and less complicated.
The practice of nominal or authorized share capital will be discontinued upon incorporation of the business.
Company naming will become more stringent.
Directors are now required to provide a different service address. After this, their personal address need not appear on any public documents.
The decision of business incorporation cannot be taken lightly even though the path to incorporation has been made easier. It is a major step and it needs a good amount of vital planning. The opinion of an accountant and other reliable resources is priceless when you undertake something as important as a business formation.
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