Advantages and Disadvantages of Incorporating a New Business

This blog discusses the advantages and disadvantages of incorporating a new business from the perspective of a business consultant. It covers topics such as protection of personal assets, easier access to capital, perpetual existence, and more.

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The blog is a discussion on advantages and disadvantages of incorporating the new
business IT business located in Kanata from the perspective of a business consultant.
Incorporated business also known as corporation refers to the type of the business that put
forward various benefits over being partnership or sole proprietorship that includes the additional
deductions of taxes and protection of the liability. Incorporating a business also allows in raising
the capital through the sale of company shares. The blog elaborately puts up a discussion on the
advantages and disadvantages of incorporating a new business.
The incorporation of the new business helps in protection of the personal assets. An
incorporated business own property, carry on the business, incur the liabilities, possess the power
of suing or being sued (Markides & Sosa, 2013). Incorporating the new IT business will also
enable it to have easier access to the capital. A corporation can easily raise capital as it can issue
shares of the stock. This helps in business development and growth. In addition, it is also easier
for an incorporated business to get easier loans from the bank. Incorporating a new business also
provides access to the alternative capital sources through which the business is able to pay the
debts. Incorporation also helps in enhancing the credibility of the business (Zhao, Song & Storm,
2013). This because, corporations considered having more stability by the suppliers, business
associates and the customers compared to the unincorporated business. Incorporation of business
leads to its perpetual existence. This is because corporations ensure an enduring business
structure from the legal perspective. Not only that, a corporation ensures continuing indefinitely
irrespective of what is happening to the officers, managers, shareholders and the individual
directors. Through incorporating a business, one can avoid legal entanglements with the other
structures of the business. Incorporation of the business also helps it in gaining anonymity
(Dunning, 2013). For instance, if a person wants to start a new business and does not want

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his/her involvement to the public knowledge then the best available option is to incorporate.
There are other advantages of incorporating a business. Since, the corporations have a separate
legal entity so tax is imposed on the profit of the corporation. The taxable profit can however be
reduced through the qualified business expenses including the operation of the expenses,
advertising and marketing expenses, entertainment and travel expenses along with the other cost
of making the profit (Boyd et al., 2017). Further, an incorporating a new business also proves to
be beneficial for the employees as it ensures contributing to retirement plans and the qualified
pensions for the employees.
However, there is certain disadvantage of incorporating a new business. Incorporation of
a new business would involve higher expensive and might take longer to set up compared to the
other types of the business structures (Osterle, 2013). In comparison to sole proprietorship or
partnership, the legal structure of an incorporated business is more complex. The fees involved in
incorporating a new business are quite higher running up to several hundred of dollar. Setting a
corporation is also a time consuming process as it involves filing up paperwork with the state
office that is also a time consuming process. Incorporation of business will also involve filing
two tax returns. This is known as double taxation. The double taxation involves the income tax
and the corporation tax. Thus, incorporating a business not only involves undertaking additional
legal formalities but also necessary paperwork. The extra cost of an incorporated business
involves legal fees, account fees and the other charges. The disadvantage of incorporating a new
business lies in the extra paperwork in the form of detailed books, taking notes at the meetings,
creating reports, sharing register, dealing with files related to tax return, maintaining transfer
register, records of the bank account along with the maintenance of the audit books.
Incorporation of a new business leads to the lack of ownership. This is because, establishment of

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a new business as separate corporate entity will necessitate the establishment of a different bank
and credit account for the business that implies having an appropriate identification of the
business. Incorporating a new business would not allow mixing of the personal and the business
funds (Popov & Roosenboom, 2013). Further, establishment of a corporation also involves
selling of stocks where shareholders can become business owners. This implies that the business
owner will not have complete control when it involves running a corporation. There will be
election of board of directors through the voting system of all the shareholders who will also
hold the responsibility of running the corporation.
Thus, to conclude it can said that, although incorporating a new business can have certain
disadvantages but there the advantages that far out ways the disadvantages and proves to be quite
effective for a business.

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References:
Boyd, B., Henning, N., Reyna, E., Wang, D., Welch, M., & Hoffman, A. J. (2017). Hybrid
organizations: New business models for environmental leadership. Routledge.
Dunning, J.H., 2013. International Production and the Multinational Enterprise (RLE
International Business). Routledge.
Markides, C., & Sosa, L. (2013). Pioneering and first mover advantages: the importance of
business models. Long Range Planning, 46(4-5), 325-334.
Österle, H. (2013). Business in the information age: heading for new processes. Springer Science
& Business Media.
Popov, A., & Roosenboom, P. (2013). Venture capital and new business creation. Journal of
banking & finance, 37(12), 4695-4710.
Zhao, Y. L., Song, M., & Storm, G. L. (2013). Founding team capabilities and new venture
performance: The mediating role of strategic positional advantages. Entrepreneurship
Theory and Practice, 37(4), 789-814.