Froodee

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The Basics of Incorporation

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A friend and business partner asked me if I could serve as an incorporator in yet another company he wanted to create. I said yes, no questions asked. I thought there wouldn’t be an issue, and of course in most cases, I’m right.

Company formation and incorporation nowadays are usually activities that can be done in a few hours, if you know the right people to get in touch with. And whether you’ve already done it once, or you’re a first-time incorporator, chances are that you won’t have a difficult time. And consider that the advantages of incorporating far outweigh the few hours of effort and small amount of funds spent for the endeavor.

Company formation experts offer one-stop-shop facilities and services to make everything done in a breeze. And since most everything can be done online nowadays, many company formation consultants also allow for online transactions. Information from around the world is at your fingertips. Shouldn’t professional services be likewise?

Commitment

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When talking things with a prospective investor (a venture capitalist, perhaps, or a friend with extra cash to invest), it would help if you already have a company incorporated specifically for your intended business. Or at the very least, you should have already have a holdings company incorporated for the purpose of managing your business endeavors. Otherwise, it would be a bit difficult for your prospective partners to trust you.

Business is best dealt with trust. I’ve seen instances of longtime friends having quarrels because of failed business plans and endeavors, and in most cases the problem lied in either party’s not having enough commitment in the business. It had mostly been due to the fact that the plan’s all up in the air—nothing concrete had been done yet, save for some projections on paper.

So at the very least, start with a corporation, so you have a solid, legal entity to represent when dealing with investors.

Outsourcing and business solutions

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Nowadays, business solutions are so specialized that it usually doesn’t pay for a company to do everything. If you intend to do all operations under one roof, then the costs may eventually outweigh the benefits. Therefore, many companies have sprung up that specialize in performing one or a few business activities and offer to undertake these for other businesses.

Welcome to the world of outsourcing. While the age of the Internet has made today a do-it-yourself age, the ease of communications and information transfer has also made it an I’ll-do-it-for-you age. You may run across problems or business requirements that you just cannot handle. Or, you might want something done but just don’t have the time or resources to do it. You turn to the experts in time of need.

In case you’re still in the conceptualization and formation stages of your company, there are also people who are experts at company formation. And they would be more than willing to guide you through the steps required in setting up your business. In most cases, they’d do it themselves! Don’t sweat it. There’s help about.

Diversify or outsource?

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It used to be that the buzzword in business was diversifying and conglomeration. Economies of scale were thought to have been achieved with large corporations that produced anything from toothpaste to heavy machinery. Well, unless you’re in South Korea (with the giant Chaebols and all), this is no longer the wise thing to do for businesses. In fact, many companies today are closing down some operations and simply sourcing these out to cheaper countries or other firms with more expertise. Some companies are also taking another approach: spinning off some divisions or departments that they can no longer handle.

Take for instance IBM’s selling its highly-acclaimed ThinkPad brand to Chinese Lenovo, or Japanese electronics firm Sanyo’s partnering with Taiwanese Quanta for LCD TV production, these show us that companies nowadays have become so specialized that there’s no longer a point to doing everything yourself. So if you’re starting a company, better think of your forte and focus on doing what you can do best!

Why incorporate?

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You’ve been successfully running a small business for quite some time, and you’re doing it as a sole proprietorship or a partnership. Well, good for you—you’re one of the entrepreneurs who make our economy grow strong (a great majority of economic growth comes from the small and medium business sector). But do give a thought about incorporating.

Why incorporate? Well, why not?

For one thing, incorporating will create a new legal entity, and can protect you from whatever liability you may have as an individual. You also get some tax perks, which will generally improve the business’ cashflow.

It’s not usually difficult to incorporate. It only takes but a few hours to at least a day. In the end, the small amount of time and effort (and money, of course) you will have to spend on incorporating will be well worth it. It makes good business sense, after all, to think of the long term and the bigger picture.