I write on my own by my hand!
Being a single proprietor and owning a store, risks and liabilities reach stratospheric levels: personal finances and business are tied to each other. There is no joy in being responsible for the business’ downtimes.
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The Author of ASAP Business English Hunger Telegram channel:: Freylina Valeriia Latifa Frolova.
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Financial Risks
Even if I am credit worthy, in the case of financial failures, loan givers can come for liquidating what is left of the store and appropriate the assets of the company, and if it is not enough to cover the debt, they come for personal assets, such as mobile or immobile property. This is the case because I am personally responsible for my store’s debts and obligations.
Legal Liabilities
If a customer slips and falls on a wet floor, I can be held liable for any injuries the customer underwent and have to settle any damages incurred. There is no shield like in a corporation to protect from paying from personal account, so if I am sued, the court can assign me to pay for medical expenses from my own pocket.
Contractual Risks
If I sign a contract for a lease and with suppliers, and if I default on payments on time, I can be sued for the breach of contract, putting my personal funds at risk.
Operational Risks
If there is a leak in a system and client personal information is compromised, I can be sued for any damages the leak caused since the store’s cybersecurity system had a glitch and failed, resulting in regulatory fines.
Addressing the Risks by Becoming Incorporated
Incorporating indicates that there is an entity (a corporation or LLC) separate from personal identity as with a sole proprietorship. Now personal funds are intact and in the case of suing, the court cannot assign personal liability to cover for damages, unless there is a corporate pierce.
Advantages
Limited Liability Protection
Incorporating has its perks like a corporate shield that protects from personal liability, which sole proprietorship lacks. If a customer sues for the fall in the store, only business’ assets are at risk: a car, a home and other personal assets are safe (Team, n.d.).
Access to Capital and Growth Opportunities
In most scenarios, corporations can raise capital more easily than other entities because corporations instill trust and bring in investors without risking personal assets. For example, I can issue stock and sell shares to expand my business and open a second store, which fuels growth, not solely relying on credit.
Perpetual Existence
It is not surreal that corporations “live” an internal life as this form of entity is not attached to owners’ lifespan and does not cease to exist once owners are gone. This advantage looks good in the eyes of investors who want a stable future for the company they brought money in as well as for creditors, and even employees.
Disadvantages
Increased Cost and Complexity
It is no joke that corporations require greater capital involvement to maintain the company afloat. Numerous forms to be filed, fines to settle, and papers to manage, not to mention hiring more staff than a sole proprietorship would need — articles of incorporation, annual meetings, and reports are to be taken care of. To navigate complexity, a corporation must comply with a gazillion of laws and bylaws.
Double Taxation
LLCs and sole proprietorships are to have pass-through taxes, e.g. paying only on a personal level an income tax. Corporations usually are taxed twice: first paying a tax for profits and later on for dividends received, which might poorly reflect on their earnings.
To be continued on my juicy ♦️ASAP| Business English Hunger Telegram channel…