Many smaller businesses such as Shopify stores begin life as a sole proprietorship, where the person running the business and the business itself are essentially a single entity. However, as a company grows, formalizing its status as a corporation or Limited Liability Company (LLC) can start to make a lot of sense. Even if the idea of setting up your own corporation seems like outlandish overkill for your Shopify site, there are many good reasons to consider it – and here are just five of them.
Protection of Assets, and Limited Liability
With a sole proprietorship, if the business gets into trouble then all the owner’s assets can be used to service any debts the company runs up – a sole proprietor could end up losing everything, from their car to their home. Incorporating removes this danger, as it sets up a firewall between a person’s business assets and personal ones meaning that even if the worst happens and the company goes under, the owner’s personal assets are safe.
Credit Score Separation
Likewise, with a sole proprietorship the company’s credit rating is based on the owner’s individual score. Once the business is incorporated, it gains its own credit file and history. This is another protection for the owner if the business fails – the personal credit score will be unaffected by the company’s bad debts.
Although an incorporated company is taxed at the same rate as a sole proprietor, the range of allowable deductions that can be taken into account before profits are declared means that an incorporated company can be more tax efficient than a sole proprietorship.
Once incorporated, a company is a legal entity that can be bought and sold like any other. This means that the business can have an intrinsic worth that can be capitalized on, unlike a sole proprietorship which is inextricably linked to the owner.
Having a simple ‘LLC’ or ‘Inc’ after the company name can give it increased credibility and perception of trustworthiness, which can be a great aid to increasing business.
Although incorporation may seem like a large step to take, Inc. Plan offer a one-stop service to make it easy to register your company and enjoy all the benefits that brings.