Disadvantages Of Incorporating A Small Business
A lot of people who are running small and medium businesses keep on considering the possibility of incorporating a small business. While the advantages of incorporating a small business may be many in number, there is also a big list of disadvantages of incorporating a small business, which must be kept in mind. First of all, most people consider that the major advantage of incorporating a small business is that liability gets limited. Yes, the liability does get limited to a certain extent, but if you have taken any loans for the company purposes with your own guarantee and utilizing your personal credit score, you are still bound to pay those back. And then there are shareholders who will be constantly pressurizing you and trying to bend the company as per their whims. Secondly, people must know that incorporating a small business means lesser flexibility in the taxation scheme. While as a sole proprietor, you may be able do a lot of tax planning and optimization, especially if the business is incurring losses. But after incorporating a small business, this will not be possible. Thirdly, the process of incorporating a small business means that there will be one more tax return to file. After incorporating a small business, you will now be filing the return for your own income as well as that of the corporation. Two returns after incorporating a small business will also mean double taxation. Fourthly, you must also keep in mind that incorporating a small business means that you will now be doing more paper work. After incorporating a small business, you will be maintaining minute books, with all the bylaws and minutes of meetings of corporate level. Share register, Transfer register and register of directors also need to be maintained. Fifthly, incorporating a small business means a lot of expenses. The legal structuring of a corporation is complex as compared to other business models. You will be paying federal and/or state fees for incorporating a small business. There is a lot of documentation, which would have to be done, corporate lawyers will have to be hired and paid for and all this costs money. Finally, you must consider the fact that incorporating a small business means, you will not be able to use your own personal tax credits for getting any loans for your company. After incorporating a small business, it becomes a separate legal entity with its own credit rating; your personal credit rating will not be any use to the company anymore. |
