It’s no secret that there are many ways to start a business these days. They all boil down to two separate options: be a sole trader or set up a company. Both options have their pros and cons, as you would expect. But, it seems that the consensus is a company offers more advantages.
If you wish to set up a business, you may think “being” a company is more hassle than its worth. Today I’d like to share with you some reasons that prove it’s a better idea than being a sole trader!
There is much debate about whether a one-man-band company is a good idea or not. Let’s assume that your target market will include other businesses, especially larger ones. If you’re trying to pitch at bigger companies, you might get unnoticed if you’re the “little guy”.
Offering your wares as a company, however, will give you more clout. Your potential clients will perceive you as a professional organisation. They may think sole traders are likely to disappear off the face of the Earth at some point. Whereas companies are often perceived as more grounded and stable. Having a company can provide a more professional image.
You’ll save tax
Believe it or not, in many parts of the world you can lower your tax liabilities by setting up a company! As is often the case, tax laws are quite complicated. The general rule is that individuals pay more tax than businesses on identical incomes.
Let’s face it; no sane person wants to pay tax unless they have to! By setting up a company, you’ll keep more of your profits. That means you can reinvest them into your business or have a bigger salary!
Companies are easier to manage
Believe it or not, the financial affairs of a business are easier to manage than those of a sole trader. Just after company formation, records must get kept in a particular way. You will be able to put your books in better order as a business than as a sole trader. As a sole trader, however, you are more likely to develop a bad record-keeping system.
When records are easier to manage, that means you’ll have more time at your disposal. Also, the likelihood of getting fined for bad record-keeping is low.
Perhaps the biggest advantage of setting up a company is your limited liability. If things go wrong, shareholders in a company are only liable up to the amount of their investment. As a sole trader, any financial claims could mean you end up losing your valuables.
Some sole traders could even lose their homes too, in severe cases. There is always no division between business assets or personal assets, (including your share of joint assets e.g. house or car) as a sole trader.
It’s easier to borrow money as a company
These days lenders worry about giving money to the self-employed. As weird as it sounds, they won’t mind lending to companies even if there’s only one person in it!
Companies get perceived by lenders as a lower financial risk. That’s assuming they haven’t fallen behind on any financial payments, of course. So, if you need to borrow money in the future, setting up a company is the way forward.
As you can see, it often makes more sense to become incorporated. Thanks for reading today’s article.