Starting a Business v. Incorporating a Business
Many clients of ours find the difference between starting a business and incorporating a business slightly confusing. To make it worse, business regulations can make things more confusing when trying to separate what setting up a business actually entails, versus the bureaucracy of incorporating a business.
To put it simply, in the digital age, to have your business up and running, you need the following:
Your concept or idea
A medium or channel to distribute your products or services (can be through a website as well)
A way to collect money (either cash or a bank account)
The means to conduct your business.
Therefore, if you have a business idea, there are no actual physical barriers (except a lack of capital) restricting your activity, if you fully utilize the digital means available to you. Further, most countries are members of the World Trade Organization, and seek to implement (if they are not already signatories to) the General Agreement for Trade in Services. Therefore, by international agreement, restrictions on trade or business, should be minimal, wherever you are located, for service based businesses in particular.
Ofcourse, you will have to make sure you maintain legal status wherever you locate your business, and can distribute through government regulated channels when necessary (i.e. if shipping products through ports). However, with courier options, the internet and an increasing number of reputable online trading forums, such as freelancing sites, Amazon and Ali Baba, restrictions on trade are becoming less effective in preventing business from blooming.
So if setting up a business is as straightforward as described above, why do people incorporate companies? The main reason for incorporating is to establish a government registered trade name, limit your liability, and if required, trade in government regulated channels. For example, if a person sets up a limited liability company, and takes up a great deal of debt on the company’s name, they will generally not be personally liable for the debt. It will be the company, with the assets and investments it possesses, which will be separately liable for its own debts. Therefore, setting up a company serves as a form of legal protection of personal assets. There is also the added benefit, in certain countries, of acquiring a license from the government to undertake certain regulated activities. A corporate registration can allow you to import goods at various ports of entry for example, in large quantities.
Therefore, there are good legal reasons for incorporating a company, though incorporation comes with its own costs.
If you are thinking of starting a business, and want to brainstorm or get some information, get in touch. We’ll be happy to help!
info@borderlesscounsel.com