http://corporationformers.com Thu, 19 Apr 2012 21:53:53 +0000 en hourly 1 http://wordpress.org/?v=3.3 http://corporationformers.com/2009/09/7-reasons-to-form-a-separate-business-entity/ http://corporationformers.com/2009/09/7-reasons-to-form-a-separate-business-entity/#comments Sat, 26 Sep 2009 00:17:36 +0000 Entity Wiz http://corporationformers.com/?p=3

Start with the end in mind. If you haven’t taken the time to form a separate business entity, then the task of selling your business later on in life becomes much more difficult. Of course you can always make thing right later when the time comes and transfer all your customers, buildings, bank accounts, receivables, business vehicles, intellectual property, other assets and liabilities, etc to your new entity but this will inevitably take mounds of paperwork and a tremendous amount of time. Forming an entity properly in the beginning makes your exit a lot easier.

Clean banking and accounting records. With a separate entity formed for your business, you can go to almost any bank and open a business bank account.  It is wise to keep your business and personal banking separate so as to not blur the line between these two entities. Your accountant will be grateful for your separate records as well. Check with your accountant because expenses such as term life insurance rates, business insurance and other non-ordinary business expenses might be deductible.

Limit your personal liability and protect your assets. A common reason for forming a different business entity, that operates separate from you as a person, is to limit your personal liability. If a customer is trying to reach something on the top shelf of one of your stores and pulls an item down on his head, he can sue and unfortunately you’ll be personally liable unless you have the liability protection that is offered by establishing a separate entity.

Tax advantages. With the right planning, a properly structured entity offers the business owner(s) several personal tax advantages for filing taxes.

Raising money from outsiders. Most entrepreneurs, at one time or another will need money from outside investors.  Investors cannot put money into a sole proprietorship in exchange for equity.  If Aunt Betty wants to give you some startup money, that’s a different story but for all other cases, you have to have a separate entity in order to raise capital for your growing business.

Credibility. Banks, customers, vendors and employees all take you more seriously when you operate as a structured entity.

Access to loans and credit. Money sources gauge risk by analyzing several variables, one of which is stability.  Many lenders refer to business credit agencies and a structured entity has the appearance of being stable.  It’s clearly not the easiest way to start a company since there are some paperwork and fees involved. Consequently, those who take the time to properly structure their businesses are taken more seriously by creditors.

Bonus. If you’re planning on starting up a textile and apparel corporation, check out some tips from Isaac Dabah, entrepreneur and CEO of Delta Galil with years of experience in the industry.

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