Many times when we start a business, we do it as individuals, because maybe, we are testing if our project works, we don’t generate big profits, or we don’t have employees, then it seems not to be necessary to constitute a company.
However, as time goes by, if you dedicate a little time to your business, it will be inevitable that you will grow, that you will acquire new clients, that you will need more people to help you; therefore, you should consider formalizing your company.
But when is that time? It depends on each company, so here we give you some aspects to identify so you can make the decision when it suits you best.
1. You add talent and partners
When you have partners or need to hire both administrative and operational staff to make your project possible, it is advisable to incorporate a company through a partnership.
In the fiscal aspect, a society is called “moral person”, that is to say, there is not a person, but it is an entity that groups several individuals with the purpose of fulfilling a business objective. But, at the same time, they obtain rights and obligations.
It is worth mentioning that, with the tax regime called “SAS (Simplified Stock Company)”, it is not necessary to be constituted before a notary and you can invoice up to $235.000 dollars per year. However, due to the few requirements you ask for to open a company, it can generate distrust to potential investors, because this model lends itself to make phantom companies. So, it is preferable to save for the notary and start off on the right foot with another tax figure.
2. You want to establish clear functions
Who has the power to represent the company? Who and how are decisions made in the company? What are the requirements to return, sell or transfer shares? These are questions that must be answered by the members of the companies in order to reduce possible tensions.
Through the incorporation of a company, functions and procedures are established, also, in the economic participation of the partners. That is, if someone puts money into the business, he or she owns a part of the company, but rules are determined so that it is proportional to what each of the partners contributes.
3. You need capital
In general, if you want to expand or improve your business, you will need money to do so, so if you set up as a company, you will have easier access to both loans and investments or to seed capital granted in various competitions.
You must take into account that almost all businesses, especially those with a high degree of innovation, have a period of investment recovery. Therefore, you must be prepared to support the costs of the operation of the company for a few months or even years, just as Amazon did or Tesla is doing.
4. You want to invoice large companies
If you want to transmit confidence to your clients, especially to those who are bigger, it is totally recommended that you constitute your company as soon as possible, otherwise you can lose a contract or simply not be able to bid, for example, in tenders to sell to the government.
5. You pay more than 30% of your profits in taxes
The payment of tax can be a decisive factor in the incorporation of your company. It happens that when you are registered in the regime of natural person with business activity you can pay up to 35% of ISR (Income Tax), and as a legal person it is maximum 30%. If your regular income begins to exceed $3.500, it is advisable to switch to the legal entity regime.