As a consultant, you are likely used to working within a simple business structure, such as a sole proprietorship. While incorporating might seem like a big step to take, there are a range of advantages that you should consider when deciding if incorporating is for you. This article will take you through what it means to incorporate, how to incorporate and three reasons why you should incorporate your consultancy.
What Does It Mean to Incorporate?
Before deciding if incorporating is for you, you should consider the legal consequences of incorporating, many of which are beneficial. Incorporating will give your consultancy its own legal identity.
Most consultants are sole proprietors, as this is a common business structure for a single-owner business. Further, sole proprietorships usually comprise of consultants, freelancers and independent contractors, including many tradespeople. Sole proprietorships are the easiest and most inexpensive business structure to form and maintain. However, there may come a time when you outgrow this structure and are looking to expand. Incorporating is one way to take the next step in your business.
Why Should Consultants Incorporate?
We outline some of the key reasons consultants should incorporate their business.
1. Liability Protection
One of the key reasons consultants and other sole proprietors choose to incorporate is to limit their personal liability. By incorporating, you create a divide between your personal assets and your business assets. Even if you remain the sole shareholder, in the event of a legal proceeding against your company (such as civil proceedings), there is a safety barrier protecting your personal assets.
2. Increased Credibility
Another excellent advantage of incorporating is increasing your credibility and legitimacy as a consultant. Once you incorporate, you can include certain abbreviations alongside your company name. The Corporations Act 2001 (Cth) sets out some abbreviations that you can include in your company name. For example:
- Company: Co;
- Proprietary: Pty; and
- Limited: Ltd.
Adding one or more of these abbreviations to your business name tells potential clients that you are a reputable business subject to certain reporting regulations. This can also serve as a useful marketing tool by helping attract new clients. Larger corporations will primarily want to work with corporations (and some may have procurement policies that stipulate that they can only engage corporate entities).
3. Grow Your Business
Incorporating your consultancy is also an excellent idea if you intend on growing your business. A company has a flexible business structure, making it well suited to consultancy businesses that wish to either grow in scale or expand into new markets.
As mentioned previously, one of the key benefits of incorporating is that it limits your liability. This is particularly pertinent if you include another business partner or even hire employees as part of your expansion plans. Although incorporating can be costly to set up, the ability to lower the risk to your personal assets is worth it.
Continue reading this article below the formHow Do I Incorporate as a Consultant?
If you are currently operating as a sole proprietorship, you should first consider the duties and responsibilities of being a director of a company. You will then need to register your company using the Australian Government’s Business Registration Service (BRS). Once your company is registered, you will receive an Australian Company Number (ACN), which you can use to apply for an Australian Business Number (ABN).
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
At this stage, you will need to cancel the ABN you obtained for your sole proprietorship. This is because you cannot transfer your ABN to your new company. Finally, you will need to transfer all your business assets to your new company, including your existing contracts.
Key Takeaways
Incorporating will provide your consultancy with its own legal identity. This brings with it a range of benefits, some of which include:
- liability protection;
- flexibility to grow your business; and
- increased credibility.
If you are a consultant and need help incorporating, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Incorporating a company means to separate your business from your legal identity. Although this is a more complex and expensive structure than other business types, such as a sole proprietorship, incorporating can be an excellent catalyst for the growth of your business.
Incorporating provides your consultancy with its own legal identity, separating you from your business. This brings a range of benefits, some of which include liability protection, increased credibility that can help your business reputation and more opportunity to grow your business.
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