Are you the owner of a fast-growing business that began as an idea in your living room? Are you interested in knowing about the ideal legal instrument that can help grow your business, protect your brand, reduces taxes and increase access to borrowing? If yes, read on to understand two legal entity-creation strategies; Business Registration and Business Incorporation and the relative merits of each.
Business Registration involves filling the requisite paperwork to let the government know about the contact details, location, and ownership of the of your business. It allows you to obtain a license to legally operate in your chosen domain. For example, in Ontario, business names can be registered with the Central Production and Verification Services Branch (CPVSB) of the Ministry of Government and Consumer Services (MGCS).
In comparison, incorporating your business involves converting your personally owned business into a separate entity called the corporation which has its own pros and cons. The entity that’s right for you depends on your specific circumstances and future plans.
Money matters first. The registration process holds you, the business owner personally liable for business damages such a severe case of food poisoning suffered by customers after eating your oysters. The incorporation process channels legal liability into the corporation that you have created and liability can often be limited by local bankruptcy laws. This protects you from going bankrupt if your business fails as could happen in the case of registration.
Converting your business into a corporation also helps you take advantage of tax sops offered by the state so you can save valuable capital and plow it towards further expansion. But there is a catch. A corporation also becomes vulnerable to double taxation if its multinational and the countries involved don’t have tax treaties. On the other hand, being the owner of a registered business means that the owner must bear all tax-liabilities.
Access to Capital
Another major advantage of incorporation is greater access to money from equity markets whereas registered businesses tend to have constrained access. This can be a crucial difference for cash-constrained businesses looking to scale rapidly. However, access to cheap external capital makes a corporation more beholden to the whims of its shareholders and to the vagaries of the next quarter.
Duration of Existence
Further, corporations enjoy continued existence while registered businesses may need to periodically renew their licenses. Incorporation also makes the ownership easily transferable while registration may greatly complicate a change in ownership.
The instrument you choose ultimately depends on the specifics of your case, and soliciting the advice of a good chartered accountant and lawyer are preparations that will stand you in good stead.