Introduction
If you are starting a new venture or looking to grow your business, you may be considering starting a company. Although registering a company can seem like a big step, there’s also many benefits in trading under a company structure. In this article, we’ll outline the 5 benefits of registering your company and how this can see your business soar.
1. You will limit your personal liability
As a sole trader or partnership you are legally responsible for all aspects of your business, including debts and losses. Further, if you sell a defective product or make an error, you will be personally liable. Running a business this way can be risky, because it means that your personal assets are also on the line.
By contrast, a company is a separate legal entity and it is an easy way to protect your personal assets from your business actions. Debts which attach to the company will not attach to you, which means that you can focus on building your business.
2. You will minimise your tax liability
Depending on how much revenue your business brings in, you will likely pay less tax under a company structure. In Australia, the current tax rate for companies and small business is lower than the highest tax rate for an individual. As a sole trader, you are taxed as an individual and your business’s profits form part of your individual income.
In addition, your company will be entitled to a range of tax deductions for advertising, education and training and repairs and maintenance.
3. You can avoid conflict with your founders
Registering a company helps immensely if conflict arises with your cofounder. When you register your company, the control which owners have is subject to the number of shares they own. The owners will have a clear understanding that their investment in the company is not by any pre-registration verbal or written promises. If a dispute arises, share allocation will also determine who has the most decision-making power.
Similarly, companies can allow you to separate the ownership and management of the business. For example, you may have several shareholders, but appoint managers who do not own the company. This allows the business to be run by expert professionals, who are focused on generating profits for the shareholders.
4. Legitimacy and brand awareness
Think of the biggest brands in the world today – Google, Nike, Facebook. All of these are registered companies. For a business to be as successful and expansive as it can be, having a company structure is necessary.
Registering your company enhances the reputation and perception of your business. A company is its own entity, which operates separately from you. You will also be accountable to ASIC and operate under an Australian Company Number (ACN).
Becoming a registered company is also important for any future dealings with third parties, as many businesses will only hire or engage with registered companies. This means that your business contracts will have your company’s name on it, rather than your own.
5. You can raise significant capital
As a company, your ability to attract investors and raise money for your business will be easier. Registering your company gives you the ability to borrow and incur debt but more importantly, sell shares and raise equity capital. If you had any other business structure, then you would need to pay taxes on your personal income tax statement even if that money is staying in the business.
Raising money could be essential for the development and expansion of your business. It is also preferable for investors to invest in a registered company rather than a sole trader or partnership, mainly because they know that there is a formal structure in place to accept their investment.
Conclusion
Registering a company can be one of the best ways you can expand your business and help ensure its success. Not only will you be free of liability, but lower tax rates will mean that you can focus on turning your business into the lucrative venture you want it to be. If you’re unsure which business structure is right for you, a business lawyer can help you determine which option is right for you.
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