When you are starting a business, you need to know what type of corporate structure you are going to adopt. This is a major consideration that could dictate how your operations and management of the business be like when you begin running it.
Among the types of corporate structures are sole proprietorship, partnership, and corporation. Let us define them first before going on further.
Sole proprietorship is considered as the easiest form of business because you only need one person to start the business. However, this also means that the owner carries the financial burden of the business.
In partnership, two or more people are needed to hit the ground running. Under a formal partnership agreement, the investors are enforcing a profit-sharing deal.
A corporation, meanwhile, is a legal entity separate from its shareholders and owners. You can incorporate company in India via online portals.
Some are choosing to have corporations as a corporate structure because of the benefits that come along with it. Here are some reasons why incorporate a company for your business.
A Corporation Has a Long Corporate Life
The life of a corporation does not depend on the life of its owners, unlike the proprietorships and partnerships. Corporations can continue existing until the board of directors and shareholders vote on its dissolution, it merges with another company or files for bankruptcy.
This is possible because the shares—which represent ownership—can be transferred by the shareholder to another individual. This can be done through public or private sale, which is easier compared to the divestment procedures in proprietorships and partnerships.
You Can Easily Raise Capital
As mentioned, a corporation can easily sell shares of stocks, which can be a source of fund-raising activity. For a corporation to be introduced in the stock exchange, it must undergo an initial public offering.
Initial public offering is requiring a lot of resources and time to plan. You should discuss this with your fellow investors before going into the market. You have to seek expert advice and suggestions to fully know the sentiment of the investors in the stock exchange. This is to make sure that everything will be worth it.
After raising the funding you need, make sure that the money goes to the proper allocations.
Protection Against Personal Assets
This is probably one of the best advantages of incorporating a company. When you incorporate your business, the company becomes a separate legal entity. It has the right to own assets and file lawsuits.
The concept of limited liability draws the line between the assets of the company and assets of the owners. The corporation can only use the assets invested by the investors to settle maturing financial obligations. The corporation, at the same time, has no rights to go against the personal assets of the investors. This is the protection that most investors are looking for.
Limited liability can be truly beneficial in the face of a bankruptcy when the company has no choice but to wind up. Its debts will be settled only by its own assets.
Downside of Having a Corporation
On the other hand, you should also be informed of the downsides of incorporating a company.
- It is mandatory for corporations to have annual meetings with its many shareholders.
- Corporations usually take a lot of financing to set up compared to proprietorships and partnerships.
- It is required to file periodic financial reports and other necessary documents.
When you are gauging your options, you might consider reaching out to a India corporate service provider. Do not hesitate to contact 3E Accounting India right away. Our team will help you in every step of the way.