Incorporation of Company in Singapore – 5 Reasons Why
The majority of small business owners launch their businesses as a sole proprietorship and in such cases, they are personally responsible for every aspect of the business. However as the business continues to grow, one might consider the incorporation of company where the business seizes to operate as a sole proprietorship. Whether you are considering formation of company or you already have a company that you intend to incorporate; having an understanding of the reasons for doing so can be quite beneficial.
Here are some of the reasons for incorporation of company;
Protection of personal assets
When one is operating a sole proprietorship or a partnership, there is virtually no separation between the business and its owners. Incorporation of company helps with protecting the personal assets of the owner in case anything happens in the company. In a properly structured and well-managed corporation, owners tend to have limited liability for the business obligations and debts.
Protection against personal liability is a key reason for formation of company. As long as the incorporated company complies with all of the corporate formalities, then issues such as the creditors, court judgments and other liabilities cannot impact the owner’s personal assets.
Name protection and additional credibility
Formation of company could be the start of launching a business however as it continues to grow and expand you may consider incorporation of company. The fact that the company is incorporated can in a great way add legitimacy and credibility to the company. Most vendors, partners, customers, and consumers prefer doing business with an incorporated company than the partnerships or sole proprietorships. Once you have secured a trading name, other businesses may not go for the same name and that helps legally with marketing and brand building.
Companies that are incorporated tend to enjoy tax flexibility as limited exposure is provided to personal liability. When an individual considers formation of company, they are likely to be taxed at both corporate and individual levels. Corporations provide a way of avoiding double taxation of corporate profits and dividends.
If you are in the process of considering formation of company or your personal business has grown and you are considering incorporation of company; it’s advisable that you engage the services of a professional so as to ensure that every process is executed properly.
Unlike sole proprietorships and partnerships that end when the owner leaves the business or even dies, incorporated companies tend to exist even after the management or ownership changes. When considering incorporation of company, you should have clear insight that the company will be outliving you and so how you get to manage it is critical.
Once you understand some of these reasons for incorporation of company, one can decide early enough whether to upgrade their sole proprietorships or partnerships into corporations.
When operating a partnership, arguments may always arise regarding how equity should be divided. However, with incorporation of company, stock can be issued to the founders and that helps with preventing misunderstanding that may arise with the split of equity.