Recently, I had a conversation with an E-Commerce Marketplace Founder over a cup of tea. She had been running a niche marketplace for a very long time and earning profits but had never formally registered the business as a company. Despite how risky this was, she simply never considered formally registering her business and did not see the urgency to.
After listening to her for half an hour I realised that she did not fully understand the consequences of not registering her business nor the benefits of registering a company. After interacting with more founders, I realised that it is the same for them, they believe that having a website/domain name is all that is necessary to run a business. This could not be further from the truth.
There are several benefits to registering a company and risks attached to not registering one;
- Registering a Company allows you to protect your assets
When you register a limited liability company, you separate yourself from the business and its debts. What this means is that if the business incurs debts you will not have to pay for it personally since the business is a separate entity from you. However, if you only have a domain name and have not registered your business as a limited liability company, you will have to pay from your pocket in case the business incurs a debt or is sued in court.
2. Registering a Company makes it easier to raise capital
Registering a Company makes it easier for you to raise capital through investors or loans. Investors and Banking institutions prefer dealing with incorporated entities because they have an element of legitimacy to them. Having a registered company also means that you can open a bank account and build a line of credit that you can use to access financing when you need it.
3. Registering a Business makes it easier to leave a Legacy
If you are building a business that you intend to leave as part of your legacy, then it is smart to register it as a limited liability company. A limited liability company has perpetual succession which means that it continues to run despite what happens to those who started it. It means that the business can go on in the name you founded it on for hundreds of years after you are gone.
4. Registering a Business makes it easier to protect your Brand
One of the most important assets your business has is its Brand. Your Brand includes all the things that mark and identify your business while distinguishing it from other businesses. When you register a business as a company you protect the business name which cannot be registered by a different person and makes it easier for you to register subsequent things like Trademarks and Copyrights in the name of the business.
5. Registering a Business makes it easier to include investors in the business
Sometimes it is important to give a stake in your business to another person like an investor/venture capitalist in exchange for funding or a person in exchange for their skill and expertise. It is very hard to do this when all you have is a domain name but if you have a registered company you can easily give a person shares in your company in exchange for their investment.