You just started your first business or want to start a business. You need to choose the correct business structure and implement your business plan, before you make your first sale.
There are many things that you must do and little time to do it in.
Legal format of a business
Before you can start trading, you need to decide if you could possibly trade as a sole proprietor or even as a partnership with someone else. The problem with sole proprietor/sole trader and partnership type of businesses are that the individuals personally carry all the risks of the business. In other words, the sole proprietor/sole trader is personally responsible for the debts of the business.
Don’t get me wrong, there are some businesses that can trade successfully as sole proprietors/sole traders or partnerships. For example, if your business is to deliver a service and you don’t buy and sell products on account.
You can start many businesses as a sole proprietor/sole trader, to test your business models/ideas and then later incorporate or register a business.
If the nature of your business is risky or even complex, you should rather register or incorporate a business from the start. Many people refer to this as Corporations, Companies or Enterprises.
Liability Insurance
Always ensure that you have sufficient “liability” insurance in place for all business formats. Some countries still refer to this kind of insurance, as “public liability insurance”.
Incorporate/Register a business.
In the process of incorporating a business (Corporate business entity) you are forming a separate legal entity. This registered business will normally have a registration number and some registration documents. Registered businesses entities or companies, can sue, it can enter contracts, employ people, own assets and have liabilities. Companies can even own properties and can obtain finance to expand business activities. These legal entities or companies have natural persons representing them and acting on their behalf.
We call the representatives of these companies, shareholders, directors, members or owners.
Protecting your personal assets
The main reason for registering a company or other form of legal entity is the protection of your personal assets, yourself and your immediate family. In other words, people or businesses will sue the company you have registered, instead of suing you, in your personal capacity.
Personally liable for company debt
There are some exceptions when you can be personally liable for the debt of your incorporated business. A good example of this exception is where the registered business owes money to your local Revenue/Government Department, for any taxes owed to them.
Another example are business owners, committing tax fraud or money laundering.
You need to research company or business structures that provides “Limited Liability”, in the country where you plan to register your business. Limited liability means that you, as the shareholder, director, member or owner is legally responsible for the debts of your registered business, to a maximum value of your shares or capital contribution. The exception being taxes as mentioned earlier. Some countries might apply further exceptions.
Company Formation Specialists
You will find many companies that specialize in registering companies in different countries. When registering your business, it is best to use the services of these “formations specialists”. They can also give you valuable advice when you want to expand your business to other countries. Some of these formation companies also assist you in opening a bank account for your business. Always remember the “Limited Liability” principle when asking about incorporating your business.