An incorporated business is its own legal business structure that is set apart from the founding individuals. This implies that as owners of the company, you create a separate legal entity for business transactions. The new business entity transforms the way business is viewed through the eyes of the law (Model Organizational, 2014, 1252). In addition, this kind of business has possesses more credibility with potential employees, customers, and vendors (Toner, 2014, 25). Besides the tax reasons, the greatest motivation for meeting the costs incurred in setting up a corporation is the fact that the shareholder is not legally liable for the corporation’s actions.
Advantages of Incorporating a Small Business
Limited Liability of the Business
The main advantage associated with incorporating a small business is the issue of the limited liability. Unlike in the case of the sole proprietorship, whereby the owner of the business is expected to assume all the company’s liability, in the case of an incorporated business, the liability of the individual shareholder is limited to the invested amount they have in the company (Electing, 2013, 854). This implies that unlike in the sole proprietorship, personal assets cannot be seized to pay debts of the business. Additionally, the sole proprietorship has the same rights as the individual in terms of ownership of property, incurring liability, and carrying on business.
Corporations Carry On
Notably, in terms of continuance, corporations are better placed than sole proprietorship (Jamison, 2007, 26). It has an unlimited life span and continues to exist even after the shareholder leaves, dies, or if the ownership changes.
Corporation have greater capacity to raise money making it easier for the business to grow and expand. First, corporations are allowed to borrow money and to incur debt (Model Organizational, 2014, 1253). Secondly, as Toner (2014, 25) notes, they can sell shares in order to raise capital. This is particularly a key characteristic of a corporation since equity capital is not repayable and does not incur any interest.
When a small business is incorporated, the shareholder can determine when they personally receive income. This is a real tax advantage for the owner. Instead of having the income when it is received, incorporation allows the shareholder to take their income at such a time when they can pay less in tax?
Potential Tax Deferral
When a small business is incorporated, it earns the potential to tax deferral. This is because the business can defer paying the tax until a later date and as such realize tax savings when they are in lower tax bracket or when tax rates have fallen.
Income splitting is another tax advantage presented by incorporating a small business. This is because a corporation pays dividends to its shareholders on the basis of the business earnings. The shareholder is not required to be actively engaged in its business operations to receive the dividends (Toner, 2014, 26). The spouse and children can also be shareholders in the corporation, offering them the chance to redistribute income to other family members especially those on the lower income bracket and reliable to lower tax rates.
Jamison (2007, 26) contends that by having Ltd., Ltee, Corp., or Inc. As part of the company’s name, these initials are likely to increase business. People perceive corporations as the more stable businesses than incorporated business. In case the company deals with contracting business, some companies only consider conducting businesses with incorporated companies particularly because of the liability issues.
Disadvantages of Incorporating a Small Business
While there are numerous advantages to incorporating your small business, there are equally a number of disadvantages that must be considered. These disadvantages can be described as resulting from increased cost and paper work or formalities that the shareholder must adapt to once they have incorporated compared with the partnership or sole proprietorship.
An incorporated business attracts at least two tax returns annually; one for the corporation and the other for the personal income. According to Jamison (2007, 26) this implies increased accounting fees for the business.
Increased Paperwork and Formalities
There is more paperwork involved in the maintenance of a corporation than in a partnership or sole proprietorship. For instance, as a corporation there must be minute book containing minutes from corporate meetings and corporate bylaws, register of directors, transfer register, share register, and annual reports (Electing, 2013, 854).
Lack of Personal Tax Credits
Being incorporated might pose as a tax disadvantage for the business. Corporations do not qualify for personal tax credits. For this reason every pound earned is taxed (Electing, 2013, 854). This partly makes the overall tax payment to be higher for the owner.
Less Tax Flexibility
As a corporation, the business does not have equal flexibility in the handling of business losses as a partnership or a sole proprietorship. Unlike in the case of the sole proprietorship whereby if the business incurs operating losses the owner can use these to minimize other forms of personal income during the year, in the case of incorporations, losses incurred in operations can only be carried back or forward to reduce the income of the corporation from other years (Toner, 2014, 26).
Expensive Corporation Registration Cost
It is more expensive and time consuming to set up a corporation because it entails a more complex structural and legal structure compared to a partnership or sole proprietorship (Electing, 2013, 855). Operating this kind of business is equally costly because it involves more formalities and guidelines. This makes the overall cost of operation to be higher.
The prime advantage of business incorporating in limited liability can be undercut by credit agreements or personal guarantees. The corporations much coveted limited liability is rendered irrelevant in the case no one is willing to give the corporation credit. If the corporation requires more capital but has insufficient assets as security for the loan, the lending institutions will most likely seek for personal guarantees from the owners of the business (Toner, 2014, 26). In this case, although, the corporation technically has limited liability, the business owner will eventually end up with a personally liability in case the corporation cannot meet its payment obligations.
Implications of Setting-Up an Incorporated Business
The two most common types of business incorporation are the S Corporation and the limited liability company (LLC). Both forms of incorporation offer liability protection and undergo income tax treatment for the business owners (Electing, 2013, 854). Married couples are allowed by law to operate any form of legal entity. A corporation is considered a legal person that can bring lawsuits, contract, be taxed, commit crimes, and buy and sell property. Once the business has been incorporated, it is important that it follows all the rules of incorporation. It is also crucial to maintain accurate financial records showing a separation between the corporation’s expenses and income and that of the owner’s. It is also necessary that the incorporation issue stock, hold yearly meetings to elect directors and officers, and file annual reports. Minutes of the meetings conducted in the company must be well maintained.
Incorporating a small business implies legally separating it from the individual as the owner and giving it a separate legal entity officially recognised by law. It may also entail the loss of personal ownership. The shareholder is expected to follow all the rules outlined for practice in the country. This includes the operational requirements, management of the corporation, as well as the accounting practices of the corporation (Toner, 2014, 26). There is potentially high cost involved in the case of dissolution. The corporation will need a set of rules and guidelines that describe in greater detail how it will run.
The Equality Act 2010 (EA 2010)
The Equality Act 2010 (EA 2010) applies to organizations and businesses providing services and goods to the general public. It applies to all kinds of organizations whether offering services for free or charging for it or if it is a sole proprietorship, a limited company, a partnership, or any other legal structure. It offer guidance on how to avoid discrimination in the workplace, information about making the appropriate adjustments in removing barriers linked with discrimination, and provision for people claiming to have been discriminated.
The principal purpose of the Act on Equality is to codify the complicated and often diverse set of Acts and Regulations previously forming the basis of the anti-discrimination law in the Great Britain. It requires equal treatment in terms of access to employment, public and private services, regardless of such aspects as disability, marriage and civil partnership, religion, race, sex, belief, or sexual orientation (Non Parliamentary, C 2010, n.p). A number of equality provisions came into force with the enactment of the Act on October 1, 2010.
First, there is the basic framework of protection against any direct and indirect discrimination, victimization, and harassment within the public and private service functions. Secondly, it provides for the changing of the definition of gender reassignment particularly by elimination of the requirement for medical supervision. It further provides protection for people who are discriminated against because of perceived association to protected characteristics. There are also clearer protections for the breastfeeding mothers. The Act requires the application of uniform definition of the indirect discrimination on all protected characteristics. Finally, it provides for the harmonisation of provisions that allows voluntary positive action (Manthorpe & Moriarty, 2014, 352). More specifically, the Act offers provisions relating to disability, work, and age discrimination.
There are certain instances when certain people are responsible for what other people do. This implies that it is not just how such people such as managers and directors behave personally that matters. When running these businesses and organizations, people employed by you or are carrying out instructions issued by you, then if these people do something that can be equated to unlawful discrimination, victimization, or harassment, one can be held responsible (Johns et al., 2014, 97).
This implies that the managers and directors are legally responsible for what the organization stands for in terms of discrimination, victimization, and harassment of employees or customers (Fraser Butlin, 2011, 428). However, managers and directors can reduce or avoid being held legally responsible if they can show that they tool all the necessary steps to prevent these acts from happening or in the case the agent acted in contrary to the scope of the authority issues to them.
The act provides that an employer must never instruct, induce, or cause a worker they have employed to discriminate against, victimize, or harass other persons or even attempt to do so. Inducing or causing someone to act can include situations where the person is made to do things or persuaded to do. Both the person caused or induced or who receives the instruction to discriminate, victimize, or harass and the person who on the receiving end of the discrimination, victimization, and harassment have a claim they can lodge against the one giving the instructions if they suffer harm or loss emanating from the instruction or the activity thereof (UK Parliament Work and Pensions, 2009, n.p).
If a manager facilitates the employer to do something that is against the equity law, they are eligible for prosecution. The equity law states that one must not help another carry out an activity which the person helping already knows is unlawful under the law. It is also a criminal offence on the basis of this law to make a false statement which another individual relies on to help to carry the unlawful act (Manthorpe & Moriarty, 2014, 352). Managers or anybody else cannot stop equality law from applying to a situation if it does as a matter of fact apply.
Moreover, it is the duty of those in the management to make reasonable adjustments to ensure there are no barriers for disabled persons in their organization or business. The equality law recognizes the fact that bringing equality for disabled people might imply providing extra equipment, changing the way services are delivered, or/and the removal of physical barriers (Manthorpe & Moriarty, 2014, 352). For this reason, the management has the mandate to make these reasonable adjustments in the organization.
The duty to make reasonable adjustments is aimed at ensuring that disabled persons can access and use services as close as it can reasonably get to the standard services offered to non-disabled persons. The management is, therefore, under a proactive and positive duty to make steps in removing or preventing these obstacles. In this context, if a disabled person experiences barrier in the business or organizational premise and can show that there were barriers that should have been identified; they can bring a legal claim against the business in court. As a result, the business can be ordered to pay compensation and to make the reasonable adjustments.
An employee who feels that they have been affected by a breach of The Equality Act 2010 (EA 2010) possesses the right to seek redress. This can be done through the Employment Tribunal who has the mandate to deal with such unlawful acts that are set out in this law (Fraser Butlin, 2011, 428). The tribunal possesses the jurisdiction to determine any complaints associated with workplace discrimination, victimization, and harassment or failure to make the necessary reasonable adjustments as well as the breach of an equity rule, clause, instructing, inducing, or causing and aiding unlawful acts.
The Employment Tribunal has the authority to make declaration concerning the rights of the parties to the claim. It can also award compensation to the complainant in regard to any loss suffered or make a recommendation. This implies that managers can be ordered to compensate employees for the breaching of equality act. Additionally, if the Commission discovers that an employer or manager has committed an unlawful act, then it can conduct its investigation (Manthorpe & Moriarty, 2014, 352).
In this case, if the manager is found to have done so, they can be served with a notice requiring them to develop an action plan in order to avoid repetition of that act or even make a recommendation on a course of action for that purpose. If it suspects that an employer has been committing an unlawful act, the commission can also enter with the employer into a binding agreement to avoid such contraventions. It also has the authority to assist an employee taking an enforcement action against their manager or employer.
In conclusion, it is important to note that Equality Act 2010 exists to protect the rights of employees and to promote equality of opportunity for all. As employees, being aware of your rights as well as those of the people you serve can help in both getting a fair access to better terms and working in better conditions. Indeed, this is reflected in the principle purpose of the Act; to streamline the current mix of equality and anti-discrimination laws into one place. Managers and directors on the other side must be equally aware of their role in the implementation and safeguarding the very rights provided for in the Act. They have a responsibility in ensuring that their organization adheres to all the provisions in this law especially in making reasonable adjustments. This will avoid any legal or business implications on the manager or the company.
- Electing S Corporation Status For A Limited Liability Company’ 2013, Tax Adviser, 44, 12, pp. 854-855
- Fraser Butlin, S 2011, ‘The UN Convention on the Rights of Persons with Disabilities: Does the Equality Act 2010 Measure up to UK International Commitments?’, Industrial Law Journal, 40, 4, pp. 428-438