Incorporating a business is a big step, although it brings with it a range of advantages. The main benefit of incorporating is that a company is a separate legal entity distinguished from its directors, owners and members. Incorporating is particularly important when your current business structure is no longer suitable because your business has outgrown it. With this in mind, many businesses will wonder when the right time to incorporate is. This article will take you through when a business should incorporate and why.
When Should a Business Incorporate?
There is no precise point in time when a business should incorporate. Instead, the best time will depend on the unique circumstances of your business. With this in mind, there are a few key indicators that your company is ready to incorporate. We outline some of these indicators below.
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Protect liability |
One of the key advantages of incorporating is the ability to protect your personal liability. Incorporating is a good option if you find that your business is taking on more risk and you want added protection. Incorporating will ensure that your personal assets remain safe and that your personal real estate and savings are not at risk. |
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Investors |
Incorporating is one way to make your business more attractive to investors when your business is seeking investors. This is because investors often want a formal structure to make their investment in. |
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Transfer of ownership |
Another advantage of incorporating is that it makes it easier to transfer ownership of your business. Whether you intend to pass on your business to your children or wish to sell, incorporating provides an effective structure to simplify this process. |
In addition to the above factors, there are other critical times where you should consider incorporating. For example, before launching a product or service to the market or before a new business partner joins.
Why Should a Business Incorporate?
A primary advantage of incorporating is the protection of personal assets of the owners. This is because the owners’ personal assets are separate from company assets. Ultimately, this will help prevent personal losses if your company encounters financial or legal issues.
Further, incorporating may have a range of taxation benefits. Incorporating can also make it easier to access and raise capital. Similarly, incorporating can bring legitimacy to your business, which can improve your overall business success.
Continue reading this article below the formHow Does a Business Incorporate?
Before incorporating your business, you should ensure that you understand the duties and obligations of being a company director. There are serious consequences for directors who do not comply with these duties and obligations. Primarily, these duties involve ensuring you act in the company’s best interests.
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.
You will then need to register your company using the Australian Government’s Business Registration Service (BRS). This service combines all the tax and business registrations your business needs. Depending on your company type, the necessary registrations will vary.
Once your application has been processed, you will be issued an Australian Company Number (ACN). Likewise, you can use your ACN to apply for an Australian Business Number (ABN). At this time, the Australian Securities and Investments Commission (ASIC) will place your company name on its register and provide you with a certificate of registration.
Key Takeaways
Incorporating is a great way to help grow your business. Some key indicators that suggest it might be time to incorporate your business include when:
- your business is taking on more risk, and you want the protection of limited liability;
- you want to make your business more attractive to investors; or
- you are considering passing on or selling your business.
If you need help with 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
There is no precise point in time when a business should incorporate. Instead, the best time will depend on the unique circumstances of your business. Some key indicators that suggest you might be ready to incorporate include if you find that your business is taking on more risk and you want added protection. Likewise, you may be seeking investors or are considering the future of your business, such as selling it or passing it on.
There are a range of advantages to incorporating your business if it outgrows its current structure. These advantages include limited liability, simpler transfer of ownership, enhanced credibility and a greater ability to raise capital for your business.
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