One of the most compelling reasons to incorporate a business (as oppose to operating as a sole proprietor, for example) is to protect oneself from the business' debts.

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Not unlike most other small businesses, maybe you started your business venture as a sole proprietor. That is, you simply registered the name of your business with the Corporate Affairs office. This merely provides a means of identification for the business and ensures that no one else can register and use the name you have chosen for your business. 

 

Over time however, your business grows and so do your liabilities……maybe you got a loan from the bank or other financial institution which you used to start or grow your business. As a sole proprietor you remain personally liable for any debts of the business.  In the event that the business is unable to repay its debts, you become personally liable to repay them and may have to forego personal assets such as your home or car in order to satisfy any unpaid debts of the business.

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In contrast however, by forming a company (rather than simply registering a name), you create  a legal separation between you and the business. A well-incorporated and well-run company can limit the personal liability of its owners.  While Company assets may be at risk to the company’s creditors, personal assets will generally be treated as separate from the business assets and would therefore be protected.

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Other benefits of incorporating your business

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• You build a separate business credit profile

• It becomes easier to raise capital for your business

• It becomes easier to solicit investors

• You enhance the image of the business

• The business is an asset which you can pass on to future generations

• The business can be easily transferred or sold

• The business can continue to exist forever

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