Why You Should Set Up A Company: Dangerous Risks of Not Incorporating

When one mentions the topic of entrepreneurship and starting businesses, the topic of discussion usually falls upon business plans, cost margins, marketing strategy and the likes.

What is often neglected is the often misunderstood and forgotten aspect of what business structure is best for the business and the importance of incorporating a business to mitigate a large number of potential financial and legal risks.

This is due to the fact that we often take the administrative and foundational steps of forming businesses for granted. In fact, an unincorporated business stands subjected  to a greater  list of issues than most realise which can leave long-term repercussions on  the business. In this article, let’s explore the dangers and risks of not incorporating your business and how you can protect your business with affordable company incorporation and formation services.

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Forgoing business incorporation means forgoing liability protection

If liability protection isn’t part of your business requirements, now is the time to put it up for serious consideration. Liability protection is vital for entrepreneurs as it ensures your business’s or professional assets remain separate from  your personal assets.

This means your personal assets  are segregated from the financial and legal risks of your business. For example, in the case of a lawsuit that is filed against your business, you will not be personally held for its actions. Your personal assets such as houses, cars and other valuables will not be seized or repossessed and turned into payments in the case of financial issues.

As liability protection ensures the protection and separation of personal assets from business risks, it is definitely a welcomed and desired tool for many unincorporated businesses out there. Liability protection is granted to business owners  when they form a business identity under the legal structure of a limited liability company (LLC), also known as a corporation or a private limited company (Pte Ltd).

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Not incorporating your business makes it difficult to establish credibility

While excellent marketing and branding can work wonders to establish your business credibility, incorporating a business is often the best or fastest way to convince your customers, suppliers, partners and more that your business is worth considering and paying attention to.

As an incorporated business,  your business name has an official identity (in the form of a more esteemed LLC), it allows your business name to be available and visible to all parties involving your business. This allows your business to be seen as a legitimate and professional corporation.

This also grants your business ability to establish its own sets of legal procedures, barriers, and protection when it comes to your business operations. In the case of a transactional data breach, for example, your business entity can undertake legal actions and remediation while you as an individual are protected from any legal risks.

This is why in many industries out there, business incorporation is viewed as a must-have and not just an option. The common types of businesses that benefit from a LLC’s credibility are:

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What are the pros Private Limited Companies have over LLPs?

1. Tax savings – In Singapore, beyond a certain level of business revenue and turnover, paying corporate tax becomes more affordable than paying personal income tax. In this light, Pte Ltds with a sizable business revenue can save more on tax with corporate tax compared to their LLPs counterparts. Not to mention that Pte Ltds also get corporate tax rebates.

2. Ease of raising funds – A Pte Ltd Company in Singapore is usually perceived as trusted and credible by banks and other financial intermediaries like venture capitalists. This makes raising capital for expansion much easier than a LLP. LLPs are mostly limited to private financing and partners' contributions.

3. Ease of ownership exchange – The full or partial transfer of ownership for a Pte Ltd is a much easier process and can simply be done via shares transfer. Ownership transfer of a LLP will require the sale of each of the assets, licenses, and permits individually.

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Retailers and Direct-to-consumer businesses: Potential customers are more trusting of incorporated companies to protect their rights as consumers such as with guarantees and warranties versus dealing with individuals or partnerships

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Health or medical-related small businesses: When it comes to the human body and healthcare in general, a LLC allows you to reassure that your business has the expertise and necessary qualifications as well as the official medical certifications required to treat their health

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Hospitality industry and related businesses: As the hospitality industry is built upon the solid relationship between customers, vendors and suppliers, it will be beneficial for would-be hotels to be registered as LLCs

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Not Incorporating Gives You Trouble With Business Credits and Tax Savings

One of the commonly talked-about benefits of incorporating your business as a LLC (Pte Ltd) is its entitlement to significant tax savings from the Singapore government. This has been a boon for new businesses as tax exemptions are always given to incorporated companies , but not sole proprietorships and standalone consumers.

For example, LLCs are entitled to 75% exemption of taxes for the first $100,000 earned and the next $100,000 earned will be entitled to 50% of taxes exempted.

On the other hand, securing business credit can be a challenge as well for non-LLCs in Singapore. Let’s say you’re a sole proprietor for example – you will be required to give authorities access to examine your personal credit history versus having a professional examination of your business’s financials.

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Choose Sprout Asia as your go-to corporate secretary, accounting and bookkeeping service provider for your Private Limited Company (LLC)

If you are looking for an easy incorporation procedure, lower tax rates, ability to raise funds and better credibility, choosing to incorporate your business as a Pte Ltd is a strategic move.

Here’s the good news - incorporating your business doesn’t have to be a tedious, year-long process!

Sprout is a specialist at helping new and small businesses with company incorporation at effective and competitive pricing. We can do this because of our reliance on technology to automate workflow while allowing our team to focus on providing good service.

Schedule a call with Sprout for a complimentary consultation. We can provide insights on how we can add value by providing more insight into your business' financial performance and cash flow, allowing you to make better decisions.