The world is an unprecedented entrepreneurial boom. There are many people who yearn to make a corporation, quit the 9 to 5 office job, establish a company and become president. In fact, Statistics show that over 627,000 new businesses open each year, according to SBA estimates. On the other hand, the number of abandoned companies due to bankruptcy is about 22,780. Keep in mind that many people close their businesses in the shadow of the entrepreneurial boom. Why does the company collapse? Your company that you created. Ten years later, we will completely cover “how to make a corporation that last at least 10 years?” without relying on the methodology of only small hands so that the company will not collapse.
Benefits of setting up a company
Many readers of this article may want to set up a company in the near future.
But what exactly are the benefits of setting up a company? In some cases, the sole proprietorship (freelance) option may be more appropriate than the incorporation. From here, let’s look at the merits of establishing a company.
One of the merits of being incorporated is that it improves creditworthiness. Depending on the business partner, there are companies that do not enter into contracts with sole proprietors. and limit contracts to corporations only. Therefore, if you want to reach new customers, you may have an advantage over the sole proprietorship.
In addition, there are cases where we consider financing from banks and other financial institutions when expanding our business. In the case of a corporation, strict property management is required, which makes it easier to raise funds due to looser loan conditions.
Establishing a company in this way has the advantage of increasing the creditworthiness of the outside world and making it easier to develop business partners and raise funds.
Leads to tax-saving measures
The second advantage is tax-saving measures. “Income tax” is levied on sole proprietors and “corporate tax” is levied on corporations. Corporate tax is less progressive than income tax, and if you have a certain amount of profit, corporate tax may be more profitable.
Exemption from sales tax payment for 2 years
Corporations are obliged to pay consumption tax if sales two years ago exceed 10 million dollars. In other words, you will be exempt from the obligation to pay consumption tax for two years after starting a business. This also applies to sole proprietors, so if you continue to be a sole proprietor for two years and then incorporate it, you will be exempt from income tax for up to four years.
Disadvantages of establishing a company
Incorporation does not always bring benefits. If you do not understand the disadvantages of establishing a company, you may incur losses.
From here, let’s look at the possible disadvantages of setting up a company.
Expensive and time consuming to set up
In order to establish a company, it is necessary to register as a corporation. At this time, it takes time and money to prepare the articles of incorporation, which is the basic operating policy of the company, to certify, and to pay the registration license tax.
If you want to establish a joint-stock company, you will definitely need to pay about 50,000 dollars for the certification fee and stamp duty of the articles of incorporation (when using electronic certification) and about 150,000 dollars for the registration license tax. You must also provide capital in addition to these costs.
Obligation to take out social insurance
In the case of a corporation, even one president must take out social insurance. On the other hand, if you are a sole proprietor, you can take out social insurance if you have 5 or less employees.
Social insurance premiums are a system in which the “welfare pension” and “health insurance premiums” are split equally between the company and employees. The more employees you have, the higher your social insurance premiums will be.
Accounting work becomes complicated
I think that many sole proprietors do their own daily accounting work.
However, when incorporated, there are many documents to be prepared and more strict expense settlement is required. Even if it is a company with only one president, accounting work will become very complicated if the number of employees increases.
It is indispensable to take measures such as utilizing accounting software and hiring a new accounting staff.
If you decide to start a business, you can choose from three main types: a joint-stock company, a limited liability company, and a sole proprietor.
The first thing that comes to mind when you hear the word “company” is a corporation. A joint-stock company is an organizational form that manages a business by collecting company operating funds using stocks. The investors of a joint-stock company are shareholders, not necessarily employees.
Co., Ltd. has the highest social credibility in developing business. For susceptible to loans and grants, the organization form suitable to collect the business expansion and human resources would say. Only a corporation can be listed.
As the benefits of corporate-specific in addition to, and that the pension amount increases to receive the old age and can join the welfare pension, the highest tax rate will be listed to be lower than a sole proprietorship.
Such a person needs to establish a company
Up to this point, we have touched on the merits of corporations and sole proprietors, but there are cases where it is better to incorporate them into corporations, especially corporations.
- People who want to grow their company
If you want to increase the scale of your business, hire people, and eventually aim for listing, let’s make it a corporation and expand the range of work. There are many large companies that “only deal with corporations”.
- Those who are thinking of “business succession” in the future
The Procedure in the case of a sole proprietorship to a successor project will involving complications. The person who succeeds must file a business closure notice, and the person who succeeds must file a business start notification. In addition, gift tax will be levy when the business assets are succeeded, and if there is a loan, the person who succeeds will be obliged to repay it when the business is closed. Business succession is easier for corporations.
- people who can be expect to continue working
If you can expect a continuous contract, incorporating it may lead to tax savings. It is less risky than starting a new business from a fresh state, and it makes it easier for the business to stabilize.