Many small and medium businesses in India are still in the form of proprietorships and partnerships for the sake of flexibility and ease of compliance.
However, incorporating a business as a Limited Liability Partnership or a Company surely has some advantages.
What is incorporation?
Incorporation is the the process of forming a business entity which is distinct from its partners or members and has a separate legal existence and can act like a natural person in terms of owning assets such as properties etc.
Top 3 reasons to incorporate
1. Protection of Personal Assets
In case of traditional proprietorships and partnerships, the liability of the owner/partners is unlimited i.e they can be sued personally for the debts owed by the business. Thus, the risk of business is increased many-fold through the possible attachment of personal properties to pay off business liabilities.
On the other hand, both LLPs and companies have distinct legal status and they alone are liable for their own liabilities thereby offering a layer of protection for owners/partners/shareholders. It is important to note that in case of fraud and other criminal activities however, the corporate status can be disregarded but as these are exceptional situations, usually the level of protection of personal assets is much higher in LLPs and companies.
2. Higher Credibility
Certain important information of incorporated businesses are publically available, so that persons dealing with the entity can verify certain facts before they lend money or extend credit. This provides greater credibility to the incorporated business as the public at large has a great level of comfort in dealings with the LLP or company as against other traditional forms of business.
3. Raising Capital
Company is the preferred form for venture capital, private equity funds and other angel investors to invest in such businesses. Incase of family, friends and relatives as well, greater comfort is gained through the limited liability offered by incorporated entities.
Conclusion
Limited liability, greater credibility and increased comfort for investors are the top reasons for incorporation.
The Inscite Advantage
Inscite Advisory is a next generation professional services firm consisting of Chartered Accountants and other Finance & Accounting professionals who help businesses choose the right legal structure and takeover all the technical formalities for clients so as to give them a seamless and stress-free experience.
If incorporation or any such matter is on your mind and you need someone who can understand your needs, you can book a no cost, no commitment advisory call with our experts to get great clarity and guidance.
Hope this helps.
Cheers.
