Incorporation is the first step to formalising a business’s identity before launching its core operations. Since incorporation is government sanctioned, it helps legitimise the business, scale and grow the operations, and claim the different government-sponsored benefits.
However, many business owners avoid getting incorporated while starting their venture because of one of the following reasons -
Most business owners lack clarity about the (i) why-s, (ii) when-s, and (iii) which type-s of incorporation. This knowledge-base is our attempt at helping people easily access key information about early corporate regulations.
Incorporation is a legal process of registering a business. For regulatory compliances, and to be recognised as a business in India, one needs to be registered with the Ministry of Corporate Affairs (MCA). This helps with all the incentives with comes with being a regulated entity.
Here are some more reasons for wanting to incorporate your business -
Protection of Personal Assets
An incorporated company acts as a separate entity with limited or no personal liability. Debts, revenue, and assets of the company remain separated from the owner’s assets. In case of any loss incurred due to operations of your business, your personal assets are not impacted.
Accessibility & Availability of Capital
An incorporated company can issue stock, and raise funds, thus making it easier to grow and scale. This also helps the business owners make acquisitions or consider mergers with other companies.
Existence of business irrespective of ownership
Incorporated entities continue to exist in perpetuity, irrespective of what happens to their directors, members, or stockholders. This means that the survival of the business is not dependent on individuals.
Tax Exemptions and Benefits
An incorporated entity is allowed to deduct costs that it incurs in operating its business - resulting in lower tax liabilities for the business owners.
Early incorporation is advisable for most businesses to avoid complications that arise when they scale their operations. Businesses should be incorporated before reaching the following milestones -
Business owners part away with a business of their ownership to raise capital. Before such a portion is sold to a third party, it is important to create the shares that will be issued. Incorporation becomes an urgent priority when such an event is being planned.
Incorporation not only reassures the employees, but it is also essential when issuing stock options to employees. It is important to ensure that the entity is incorporated before such incentive policies can be created.
Registration of Intellectual Property
A key asset of business is its proprietary intellectual property. To protect that property, it is important to incorporate it as early as possible.
As part of Rize’s larger objective to help startups grow and scale, the program also helps founders incorporate their businesses. The focus of the program is to help founders when their preferred type of incorporation is one of the following
Among business owners today, there are primarily 3 preferred types of incorporation: (i) Private Limited (PVT LTD); (ii) Limited Liability Partnership (LLP); or (iii) One Person Company (OPC).
The following highlights some of the most popular pros and cons of each of the entity types -