Question Matt Business & Management

Incorporating A Business - Advantages And Disadvantages

What are the advantages and disadvantages of Incorporating a business?

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Answer Internal Staff

For a business owner the decision to incorporate a business can be one of the most important they will make. Incorporating a business means that it will take on its own legal identity. An incorporated business can own assets and liabilities in its own right, it can also face legal action.

The advantage of this to the owner(s) is that these responsibilities are removed from themselves. For example, if the business accrues large debts, the owner won’t be held personally liable, so creditors can’t send bailiffs to repossess their car or house. This provides a protective barrier that removes some of the risk for the owner.

The downside is that there is additional paperwork to be completed, the business must register with Companies House, produce governing documents – the memorandum of association, articles of association and statement of capital – and owners will lose the direct ownership of assets. To elaborate the last point, the company owns all assets and revenue, this can only be distributed to owners according to the terms of the companies governing documents, and with the agreement of the majority of shareholders.