When is the best time to incorporate?

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So you’ve bashed out a business idea, started building your product and things are looking promising.  Till now you’ve been flying solo or partnered up with one or two co-founders, winning the hearts and minds of your first customers - it’s time to get serious and create a company, right?  Well... first ask yourself a few questions:  

Questions to ask yourself:

  • do you mind the cost?  It’s $433 to register a company, plus the cost of writing a (optional) constitution and shareholders agreement
  • it's all in the name - check to see if someone else has already come up with your company's name first
  • you'll need to keep records! You must keep track of your accounts and keep ASIC updated with any changes in your company - are you cool with that?
  • If you're to be a director, are you willing to learn what your directors duties are and comply with them?

Yes?  Great.  Now for the good stuff.

The good stuff:  

  • Limit your liability - as a sole trader or a partner in a partnership, when someone sues you, your personal assets (life savings, vespa, stamp collection etc) are on the line.  Even if it’s your partner’s fault, you’re both liable.  Using a company to run your business, means the ‘company’ will be sued, not you personally.  So your assets may not come into the firing line.
  • Flexibility - a company is a separate legal ‘entity’ so even if the owners (shareholders) change, the company itself keeps on going.  Pretty essential if you’ll need to raise money from investors or dreaming of that seven-figure exit!
  • Tax - if the money’s rolling in nicely, then operating as a company might work for you, because a company pays a flat tax rate of 30%. Compare this with your personal tax rate and do the math.
  • R&D - Looking at spending $20,000 or more on R&D?  Incorporating gets you access to the government's generous 45% refund under the R&D Tax Incentive.
 
Using a company to run your business, means the ‘company’ will be sued, not you personally. So your assets may not come into the firing line.
 

So... when’s the best time to incorporate?

Take the plunge when your business idea is well formed, you want the flexibility to add and change who owns your enterprise and you’re ready to commit some cash upfront and ongoing to comply with your ‘new’ legal obligations as a company director.