Small business incorporation: why is it a must? 

Small business incorporation may be considered a burden by businessmen who think they have very minimal business operations that is not worthy of being incorporated. However, they should know that incorporation is not only for big businesses but for small businesses as well.

Incorporating a business has its advantages for all sizes of business ventures. Almost all business, even a small one, would want to enjoy the perks and legal privileges being enjoyed by a corporation.

The deciding factor for a small business that plans to incorporate is perhaps the type of business and its long term plans. If you have plans of starting out small but ultimately grow big then small business incorporation would be ideal for your venture.

Here are certain facts about small business and how the process of incorporation can help them considering these facts:

• Most small businesses are classified as sole proprietorships or partnership. This means that the business is owned by one or two people, sometimes more. Having his classification would be good if the business grows big and it earns big profits because only the owners share in the profit. However, when the business goes down and it has to pay its liabilities, even the personal assets of the owner or owners may be held liable for unpaid debts and other liabilities. Incorporating the business would mean that the liability of the owners to its creditors would only be up to the amount of his investment in the business.

• Since the small business is owned by one, two or more people and is classified as either a sole proprietorship or a partnership, then majority of the expenses incurred even in the process of operating the business are considered expenses of the owners and could not be held as tax deductions.

• Small business classified as sole proprietorships or partnerships do not enjoy a separate juridical personality so the personality of the business is attached to the personality of the owners. This means they are responsible for anything that happens to the business and to all who suffer damages from such incidents.

• Sole proprietorships and partnerships are taxed heavily compared to corporations which are imposed lesser taxes. Corporations can also claim a lot of tax deductions. This could not be said for the unincorporated businesses.

• Small businesses that are unincorporated have to fend for themselves unlike corporations which can hide under the mantel of the corporate veil. Under this principle, the courts will not interfere with the operations and business decisions of a corporation unless very necessary. The court will only lift the veil of corporate independence when it is proven that it is causing harm to other people.

• Small businesses have to look after themselves in terms of getting capital for operational and expansion purposes. A corporation has an unlimited source of finances because it has access to various investors who may invest their money in a legal entity like a corporation.